Follow Us Here:Mortgage Lenders Plus on Facebook
Mortgage Lenders, Home Mortgage Lender, Home Loan Lenders, Mortgage Lenders! Mortgage Lender, Home Mortgage Lenders, Mortgage Lenders!
Mortgage Application Mortgage News Mortgage Calculators Home Equity Loans Mortgage Loans

Mortgage Refinance FAQ

Prepayment Penalities Add to The Cost
ARMS that have prepayment penalties will add substantially to the cost of refinancing. A $300,000 loan with a 3% prepayment penalty will demand a fee payment of $9,000.00 for early payoff. If your ARM has such a clause, you should consider negotiating your new loan with the same lender and see if you can get that fee waived. Business conditions in the mortgage business right now are in your favor.

The same applies to an ARM with a balloon payment. These are loans that were sold with the express purpose of forcing a refinancing package when the balloon payment becomes due. Before you go looking for a new loan that will keep you out of balloon payment debtor’s prison, talk to your lender and see what alternatives are available. Many times, people with mediocre credit accepted these loans. After a few years of meeting mortgage payments, your credit may make you worthy of a more reasonable ARM, if not a fixed rate loan

Save Money on Lower Rates Over Time
How long to you intend to be in the house? You’ll be saving money on that lower interest rate only as long as you remain there. If you think you might be moving in a few years, the question becomes “Are the costs of the new loan going to neutralize my savings?” Once again, the prepayment issue comes into play, if you think you’ll be selling the house within five to seven years. You can no longer expect rapid acceleration of housing values to make these sorts of costs immaterial.

Fortunately, in today’s market loan origination costs are negotiable. The lenders need the business. If you are attempting to refinance an ARM into another ARM and think you’ll be moving within ten years, take advantage of one of the seven-year or ten-year ARMs so that you can close out your loan having maximized your interest savings.

Calculate Your Savings Based on Current
You need to calculate your savings based on today’s dollar. The closing costs you’ll be expending (or borrowing) will be in 2007 dollars, while the interest savings you’re realizing will be accruing for many years ahead. Obviously, the dollar in future years won’t have the value of the dollar today. This may seem like an overly complex calculation and, perhaps, splitting hairs – but if you’re going to conduct a thorough analysis of your refinancing savings you have to take inflation into account. There are mortgage calculators available online that will help you do this.

One other figure that may inflate when you refinance is your property taxes. If your loan is based on a new appraisal and valuation, that may appear in the form of a new property tax, depending on how the tax assessment process works in your state. Ask your broker if it is possible that your tax bill will change and if so, you’ll need to calculate that into your savings evaluation.

Look for Payment Caps and Max Rate Increases
If you’re going into another ARM, look for payment caps that hold down the maximum possible rate increase. Many ARMs that were issued during the housing frenzy had caps on your PAYMENT increase, but not on the INTEREST increase. With a loan of that type, your payment may not cover the increase in interest and you could be building up debt even as you think you are paying it down. There were some dangerous components put into many of the “house at any price” loans issued since the year 2000; make sure you get terms this time that you can live with.

If the whole notion of calculating the value and cost of a new loan bothers you, consider talking with your lender about renegotiating the terms of your current loan. If it is an ARM, see if you can get the range of annual adjustments narrowed – and payment caps put in place, if none exist. If it is important to keep the mortgage payments down, see if you can get the note extended and the interest rate reset. Once again, lenders today are out trolling for business. They will be loath to lose an existing loan and may be willing to revisit terms – while you avoid the substantial costs of a new mortgage.

Having a Lower Rate is Best Over Time
To sum up the process in clear terms, refinancing a loan is never worth the effort unless the new interest rate is lower than the old interest rate, calculated over the life of the loan. The break-even period is the number of months before the savings from the lower rate completely offset the upfront refinance costs.

We’ve mentioned some of the secondary cost factors, but here are the basic refinancing loan costs, which are some of the same battery of fees that you faced when you took out your first mortgage. Those are points, loan origination fees, broker fees, and any prepayment penalties. This time out you’ll avoid escrow fees, title fees, appraisals and hopefully, attorney’s fees. Remember, however, that financing the loan costs also has a cost attached to it, and should be incorporated into your “new loan vs. old loan” comparison.

You have to balance the term of the new loan versus the old loan as well. In many cases, this is a financial calculation – for example, if you can refinance into a fifteen year mortgage you will save yourself a lot of money in interest. It is also a life planning issue as well. If you are refinancing at a point where you’ll be paying on the new loan well into retirement, you may want to reconfigure your loan arrangement or consider other options.

Request Quote
View Privacy Policy
+ Related Articles
2 Questions to Ask in the Bank Refinance Scenario
Adjustable Rate Mortgages Carry Substantial Risk
Adjustable Rate Mortgages-Can I Control The Cost?
Banks And The Mortgage Frenzy
Better To Cut Mortgage Or Invest In Funds?
Calculate your Refinance Savings for a Lower Rate
Efficient Refinancing: Four Tools You’ll Need
Home Refinancing Can Create A Bind Down The Road
How To Find The Best Subprime Loan
If You Plan To Cut Spending: Refinance & Reduce
Investment Refinance is a Game for Financially Savvy Homeowners
Its A Buyers Market Lower Home Costs And Lower Interest Rates
Land Refinance Can be Critical to the Survival of a Business Venture
Mortgage Settlement Costs Differ From State To State
Mortgage Shopping? There's No Comparison
Paying Ahead – A Mortgage Boon Or A Deduction Loss?
Paying Off A Mortgage Isn’t Always A Good Idea
Refinance Fees for a Home Equity Loan Are Similar to Mortgage Fees
Refinance Foreclosures are Result of Default on the Second Loan
Refinance Lenders are Busy Turning out Home Equity Loans
Refinance Rates are Defying the Laws of Finance
Refinance Tax Deductions is what makes Second Mortgages Valuable
The Popularity Of Reverse Mortgages
The Pros And Cons Of A Reverse Mortgage
What Defines An Adjustable Mortgage Rate
When In Debt, Don't Look For Quick Fix
Mortgage Calculators

Fixed Rate vs. Interest Only
Mortgage Loan Payoff
Simple Mortgage Calculator
Mortgage Loan Comparison
Savings Goal Calculator

View mortgage calculators >>
Mortgage Tools & Help

Mortgage Identity Theft
Glossary of Mortgage Terms
Ask a Mortgage Lender
FREE Mortgage Quotes
Find a Real Estate Agent
Find a Real Estate Appraiser
Predatory Mortgage Lending
Basic Mortgage Checklist
Rates & Mortgage Calculator
updated Tuesday, November 19, 2019

Mortgage Type Today Last Week Change
30 yr fixed 6.03 6.24   0.035%
15 yr fixed 5.47 5.72   0.046%
5/1 ARM 5.34 5.43   0.017%
3/1 ARM 5.48 5.42   0.011%
Your dream of home ownership, refinancing, or using your homes equity might
just be an application away. Simply fill out our short form and get quotes from
mortgage lenders near you!

Simple Payment Calculator
Loan Amount
Interest Rate
# of Years

Mo. payment
Total Interest
See more mortgage calculators
Mortgage Lender, Home Mortgage Lenders, Mortgage Application
Choose Your State's Mortgage Lender Guide
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Rhode Island
South Carolina
South Dakota
West Virginia

About | Contact | Webmasters | Sitemap | Feedback | Mortgage Help | Mortgage Loans |
Home Equity | Internet Mortgage Leads | Lender Login

Mortgage Lenders is an advertiser supported mortgage lender directory. Copyright 2000 - 2019, Mortgage Lenders All rights reserved. Use of this website constitutes acceptance of our updated privacy and disclaimer policies.

Comodo SSL        Mortgage RSS