Should you refinance your home loan, pay off your home or buy another? Should be the first question you and your spouse ask yourselves before you decide to refinance your existing home loan.
Recent reports show that some homeowners are borrowing to the constant enticement of lower home loan rates. And, without an analysis, find that they are backing themselves into a corner of more years and more costs on their loans, including more escrow cost and higher points. The savings they “thought” they were getting on a home refinance, turned out to be huge loss.
After you purchase a home, within a few months most new homeowners will get a barrage of snail mail suggesting you refinance your nearly new home.
The reason why you will be encouraged to refinance many times after the purchase, is because of profits for mortgage companies. Just remember, your home is not an ATM machine, it is best to ignore those offers for several reasons.
When you refinance a mortgage, companies collect a whole list of payments from your refinance, as with your original loan. Refinances wildly benefit the mortgage company but can hurt you badly. In fact, the people who do not get this memo may end up purchasing their own home 3-4 times during their lifetime when refinancing.
It is Not Wise to Refinance If:
-Your purchase is new ( less than 5 years old)
-There have been years of payments on your home, the focus – pay it off
-You are not going to save enough money to make a difference
-Your home has been refinanced before
-The difference in the interest rates are small
-You will add another round of escrow cost
-You will get higher points to offset the so-called lower interest
-You are going to add years to your existing loan, losing the years you have paid
It Is Wise to Focus on Paying off Your Existing Loan:
-So you can focus like a laser beam and live mortgage free with a paid off home.
-If you continue to have a payment after several years, your payment will go down in regard to inflation.
-There are many tricks in refinance loans, because of this you can make big mistakes and increase your chances of lost.
-If the difference of total money saved and new interest rates are too small.
-When you don’t have the expertise and cannot do research to understand the loan process first.
A True Story About a Refinance Loan That Worked
I counseled a woman and her husband, who wanted to know if they should refinance their home, due to a decrease in her husband’s salary.
Here is The Analysis We Did:
1. We obtained her original loan documents and discovered her original and current loan was 33 years. They did not know this; they were told it was a 30-year loan. And because it was stated in months, they did not bother to calculate it.
At the time of the analysis they had 23 years left on her original loan.
With a new 15-year loan, she will shave 8 years off her original number of loan years. This includes the years from the remaining:
23 years (original loan) – 15 years (the new loan) = 8 less years to pay a mortagage in total, with the new loan.
2. They original loan interest was 6.7%. The interest rate on the new loan was 3.8% for a 15-year loan.
So, now they has 2 out of 3 major factors that will decrease the cost of their loan. The cost will decrease by both significant interest rate and number of years. Because of this she will not lose money in the refinance but will instead save money, lots of money.
3. Their payment will go from $3400, Principle+interest+taxes+insurance, to $2400. They will pay $1000 dollars less a month in payments. Coupled with the decrease in years, this is a real winner and takes a financial burden off the family.
Why Did the Above Mortgage Example Work?
The above 3 facts are called being in the right place at the right time. It was right because the low interest rates intersected with the savings from years.
They saw the savings and went with the new loan. Also, 5 years later, she had enough money after their finances improved, to pay off their new loan. Now, they live loan free and shaved 10 years off their mortgage.
This is one of a few cases I analyzed where it made sense and saved money to refinance. In most other cases, the refinance costs, coupled with years lost, do not make a new loan cost effective. Usually, the hidden costs are huge.
Considering the continuing low-interest rates on home loans, is it time for you to consider purchasing a home? — Or refinancing your existing home? Some homeowners are said to be refinancing their existing loan over and over.
If you are in the market for a new home, one of the best times to purchase a primary mortgage is when interest rates are low. Also, you need to find a reasonably priced home. But as far as refinancing, in my opinion, I do not feel that many of the constantly refinancing homeowners understand all the facts (and high cost) surrounding home refinancing.
A one-time refinance is appropriate if you have done your homework and analysis, before you contact a mortgage broker. Then you know that a refinanced loan will be a benefit to you.
If you do not correctly answer the question, “How does refinancing work?” before deciding to refinance, you could get yourself and your home loan security at risk. Know for absolutely, if you should refinance your home loan.
Refinancing an Existing 30-year Loan
1. Each time you refinance to a new 30-year loan, you can go over your 30-year period to 40 years, 50 years and sometimes 60. If a homeowner does this every 5 year for 20 years, then at the end of 20 years you will have 30 years left to pay on your mortgage. Instead of 10 years if you did not refinance your original loan.
The extra years of interest and principle will substantially increase the amount of money you pay on your mortgage over time. And this will increase the actual cost of your home.
-Calculate how many years you have already paid on your home loan.
-Look at the number of years on your new prospective loan
-Compare the interest rate of your old loan to your new loan
-Find out the total cost that will be charged to you for the loan, by the Mortgage Broker
-If you have a 30-year loan with 15 years left to pay. Then try for a 10-year loan if the interest rate is very low. There should be a significant difference between your existing interest rate and the new interest.
-Make sure every loan you get has no pre-payment penalties. Also, pay extra to principle each month to make sure you don’t go over the 30-year mark. Paying off any mortgage loan early can save thousands of dollars.
The issue becomes, “Why are you getting the refinanced mortgage in the first place?” Are you desperate for money to use for medical purposes, college, or some other dire emergency?
Or, are you looking to save money on your overall cost and either put the extra savings into a general savings account, retirement? Perhaps you want to retire earlier with no mortgage, pay down other bills, or lower your existing payments due to financial stress? And Does refinancing your home work or hurt you?
These are questions you must answer and make your intentions crystal clear to yourself and your spouse before you decide to refinance.
How Much Will it Cost to Refinance Your Home Loan?
It will cost you a hefty sum of money each time you refinance your existing home loan or purchase one for a new home. And even the so-called no-cost loans will cost you. The purchase price of a new loan is either 2%-4% of the new loan. In the case of the no-cost loans; the fees are added into your loan as a higher interest rate on monthly payments.
You will, therefore, pay for the cost included in your monthly payments. It can take as long as four to six years to pay off the cost of your home refinance, so plan to stay put for a while if you choose to refinance.
Home Loan Resources for Primary and Refinance Loans
There are several resources to help you make a wise decision when it comes to choosing a loan for a new home. Understand how detrimental repeatedly refinancing your existing home can be. Refinancing your home should be a rare consideration and carefully calculated decision before you visit a mortgage company.
Credit unions and your local banks offer the best solutions for a mortgage. If you do not have optimal credit and money saved in a bank or credit union then carefully select a mortgage company.
The U.S. Department of Housing and Urban Development offers numerous resources on its Web site, www.hud.gov, for homebuyers. It publishes an eight-page booklet, “Looking for the Best Mortgage,” which offers advice on finding the best deal. General tips include:
1. Contact several mortgage lendersand brokers for information.
Check hsh.com to see what the average mortgage rates are now.
3. If you have a good relationship with your local bank, start with them. Especially if you have a substantial saving or checking account with them. The mortgage division is usually a separate business in your bank, but a relationship with the bank will make getting a mortgage easier.
4. Obtain all cost information, including interest rates, points, fees, down payment requirements and private mortgage insurance.
5. Negotiate your mortgage where possible. Mortgage deals vary from day-to-day. Once you find a deal you like, lock it in.
6. Federal law prohibits discrimination in mortgage lending, know your rights.
7. Understand your credit. If it’s not good, finding a loan could be difficult. To obtain a copy of your credit report, contact free credit report .
You should know your credit score and examine your credit report before you shop for a refinance.
Sometimes credit reports have mistakes on them and they can be taken off by contacting your credit reporting agency in writing, before you shop for a loan.
The primary goal for you is to make sure you answer the question thoroughly, “Does refinancing your home work?”. know should you refinance your home or buy a new one.
The More You Know, The More You Grow – Your FinancesMsFinancialSavvy, Lois Center-Shabazz
Lois Center-Shabazz| Money Strategist | Course Delta Agency
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Home or Mortgage; Buying an Affordable Low Maintenance Home and Get a Quality Mortgage
The first thing you have to ask is, “How much house can we afford” The payments include P+I+T+I (principle+interest+taxes+insurance). Most of your payment will be principle and interest, taxes vary according to state, and insurance is not a very big cost.
But, you can figure it out with most online calculators. You have to know how to calculate P+I+T+I to get a quality home or mortgage.
You should be stable in your job or with your business before you decide to take the leap to sign on with a mortgage.
Most banks want you to be on your job or in your business for a solid two years. Set up a file system for steps 1-8, don’t rush and do your research.
Below is a typical cost analysis of a home or mortgage with average tax state, always find out how much typical insurance and taxes are in your state before you decide your budget.
Choose a home price you think you can qualify for based on total payment. You will keep adjusting home price until you can find one that is close to your budget. Use my mortgage amortization calculator at LiveRichCalculators.
Say your home or mortgage costs are as follow:
$300,000 price of home
at, 4% interest
Monthly Payment and Interest=1,432.5
Monthly Taxes and Insurance=541.67
DOWN PAYMENT AND ESCROW COST
Find out what a typical down payment is at your credit union, bank, or mortgage company. Now, make sure you have the savings or start a savings account with the down payment and escrow cost.
If you find a buyer who is anxious to sell and they have a lot of equity in their home sometimes you can negotiate that they pay your buyer’s escrow cost.
For the example above the downpayment is:
A 1% escrow cost = $3000
Allow a monthly saving account for maintenance cost, most homes have maintenance repairs from time to time.
Old homes usually have a higher maintenance cost than newer homes, unless all electrical, plumbing and other major items replaced. The important aspect of a good home is a good inspection, preferably by tradesmen.
I prefer hiring an actual plumber, electrician, and carpenter to inspect your new home instead of one single home inspector. Some of those home inspectors only take a 6 month home inspection course.
The tradesmen work in the field every day for years. You should also do your own inspection with a moisture meter and electrical meter to see if there are any glaring defects.
If you place a marble on the floor does it roll or stay put, if it rolls you could have a damaged foundation. That is extremely expensive to repair. If you know the repairs you may be able to add those into your mortgage and fix after your move in.
Get a copy of your credit report before you start to look for a home. Read it carefully. Some people are shocked at the mistakes that get on their credit report. Make sure you document the mistakes on your credit report and challenge them with Experian credit bureau.
Experian will usually send the corrections to the other bureaus. When all corrections are in place, get another copy of your credit report, and credit score. Getting an affordable, quality home or mortgage starts with a good credit report and high credit score.
PAY OFF BILLS
You know what your bills are, and you know if they are excessive. You will need to find room in your budget for a mortgage. You don’t want a mortgage that increases your current bills per month too much.
Like you don’t want to get from $500 per month of rent to $1900 per month for a mortgage unless you have been saving at least $2500 per month so that savings will go into your mortgage.
You should also still have room for a savings account or two after you get a mortgage. You will need savings for home maintenance, car maintenance, and general emergencies. Pay off as many bills as possible before you start a mortgage.
SAVE FOR A DOWN PAYMENT AND CLOSING COST
Down payments are ranging anywhere from 5% to 10% down. The more you put down, of course, the lower your monthly payment will be. Then, there are buyers closing cost you must pay also. This is usually a surprise to new home buyers.
Closing cost is typically 2 to 5 percent of the purchase price. So, for a $300,000 home, the closing cost would be about $9,000.
Before you decide to use a financial institute, do your research. If you have a credit union or local bank you do business with and you have good credit, it is usually relatively easy to get a loan at one of those places and you will save on additional cost that is charged by mortgage companies.
If you can’t get financing from your credit union or bank, research the best mortgage companies in your area. You can also ask friends and family who they had good luck with.
Before your visit anyone for a mortgage. Research mortgages, make absolutely sure you understand what a quality mortgage is. Know what the current rates are for a 15 year or 30-year mortgage.
Don’t allow anyone to give you a low-quality mortgage, if they think you have not done your research, some will try to give you a low-quality mortgage, even if you qualify for a high-quality mortgage.
If you qualify for a low-interest high quality conventional low-interest rate 30-year mortgage, make sure you get one. The industry is full of nice, dishonest people, protect yourself.
MORTGAGE RATES AND QUALITY
Call your local credit union or bank to get current rates on quality mortgages.
Use my mortgage calculators at LiveRichCalculators.
Use the department of housing website to read about various types of Mortgage Issues.
This is most of the information you need to purchase a quality home or mortgage if it is your first home or your second or third.
Lois Center-Shabazz | Course Delta Agency
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Remember that buying a home is a serious process. You should take your time and be very methodical.
Some places have home prices that are outrageous – in that case, you may have to drive a long distance to get to work, by living in an affordable area further from your center of town.
Some towns have affordable housing compared to income. Take your time it may take anywhere from 6 months to 5 years to go through the process I list above. Article Updated 2019