Refinancing Advice Three Questions
(A Little Place in New Mexico)
Refinancing Advice - Three Questions Hi Kate, Here are the three questions I suggest asking a lender before refinancing. They zero in on closing costs, payment and the ability to pay off a mortgage early.
- What is my fixed rate and how much will I have to pay in discount points
- What will my payment (PITI) be?
- Are there any penalties for early payoff?
That you are refinancing to a fixed rate loan is a given. With interest rates dropping almost daily, you must decide to lock in a mortgage rate at some point.
Most, but not all, lenders are going to require you to pay discount points which are a percentage of the loan you are asking for.
Most points range from less than one percent to about two and a half percent of the loan. Look at this as a down payment on the loan you are requesting. If you cannot afford to pay points, check around for zero points loans.
Demand to know what your total payment will be. This is the total of:
- the principle,
- the interest,
- and the escrow, which covers your property taxes and insurance.
This is oft-times referred to as PITI, Principle, Interest, Taxes, and Insurance.
Depending on where your house is located, the taxes and insurance could cause the monthly payment you are quoted for principle and interest to double. The taxes and insurance will cause your payment to change, up or down, by a few dollars each year.
Be prepared for this and avoid a loan that is at the maximum of what you can afford.
Ensure that you will not be penalized for an early payoff of the loan you are getting. This is a practice used by some lenders to lock in the amount they will make on your loan. This is done because paying off a loan early deprives the lender of some of the interest you would have paid if the loan was carried out to its full term.
This covers only three things you should look for when refinancing a home loan. There are numerous other things to question and guard against. If in doubt, have someone you trust that has some knowledge of loans look it over.
Never let someone pressure you to sign any loan paperwork!
Kate Answers: Refinancing Advice - Three Questions
Hi Mike, Your refinancing advice is a great starting point for borrowers. I especially liked your reference to fixed rates.
Down below on this page are links to some descriptions of fixed rates with different terms and ways to use them depending on the homeowner's goals.
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