Interest Rates Move Lower, But Is It Time To Refinance? - Answers To Commonly Asked Refinance Questions

Interest Rates Move Lower, But Is It Time To Refinance?

Answers To Commonly Asked Refinance Questions

Should my new rate be 2 percent lower than my current rate to make it worthwhile?

The quick answer to this is, no. You do not have to wait until mortgage interest rates drop by 2 percent before you consider refinancing your mortgage.

The decision to refinance your home is dependent on many things, including how long you plan to be in the house, how much lower the interest rate will be on your new loan, the closing costs for the new loan, your equity position in the home and whether you plan to do a cash-out refinancing.

With a regular refinance, you're trying to take advantage of lower interest rates to lower your monthly payments. If you have enough equity in your home, you may even have a side benefit of being able to stop paying private mortgage insurance.

In ordered, to take advantage of a lower rate you'll have to close on a new loan and pay the closing costs associated with that loan. This is true even if you opt for a no-cash or low-cash closing. With a no-cash or low-cash closing, the costs still are there; they just are paid for either with a higher interest rate or are included in the principal balance of the loan. (There's truly no such thing as a free lunch.)

If you don't plan on being in the house very long, then the lower payments associated with the refinancing won't cover these closing costs. So you must weigh the options, but the bottom line is that you do not need a 2 percent interest rate deduction to make refinancing worthwhile.

Should I refinance with my current lender or use the services of a mortgage broker?

The question of using your existing lender versus a mortgage broker is one that many homeowners looking to refinance have. On one hand, the borrower believes that having an established relationship and paying their mortgage on time will allow them to receive better terms and fees for their lender to keep their business, rather than lose it to a refinance. This same notion is often also perceived by many borrowers in relation to a bank or credit union that they may have a relationship with as well. The unfortunate situation in today's economic environment is that this does not necessarily mean better rates and fees.

A mortgage broker has the ability to shop the mortgage around for you, especially in an environment of lower rates and find the best terms on a mortgage for your specific situation. This will allow you in the end to see all possible options available and not just the options available at one lender. It is however important to make sure you are dealing with a reputable mortgage brokerage with professionals such as Strategic Mortgage.

What is the difference between the rate and the APR?

Another common question received is the difference in the actual interest rate and the APR. The annual percentage rate adjusts the mortgage interest rate to reflect estimated closing costs, including points paid at closing and mortgage insurance.

The Truth in Lending Act requires lenders to provide the APR when advertising a mortgage loan and provide prospective borrowers with the loan's APR upon request. APRs aren't perfect, since closing costs are estimated and the lender can round off by up to a quarter-percent.

Therefore, the APR is not your actual interest rate paid on the loan, but factors in the cost of obtaining a loan and lists that as an interest rate as well on the loan disclosures.

If I have low rate on an adjustable rate mortgage should I refinance to a fixed rate now?

Many homeowners with lower rates on their adjustable rate mortgages have held off refinancing to fixed rates as interest rates have hovered around 6%. Now with rates a full percentage point lower, many homeowners are wondering if now is the time to refinance into a fixed rate mortgage for the long term. The answer, more often than not, is yes.

With interest rates at near historic lows, now may finally be the time to refinance to a fixed rate. Many homeowners have been content to take a wait and see approach and while some believe that rates may decline lower, if housing and the mortgage market has taught us anything, it is to expect the unexpected. Now may be your best opportunity to lock into a fixed rate for the long term and refinance out of your adjustable rate mortgage.

For more information to questions on refinancing in the current market, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com