AM I BETTER OFF REFINANCING? WHAT WILL MY REFINANCING COST?

The costs associated with refinancing include: Loan origination fees / points / appraisal. When you consider refinancing your current property the two factors that should be considered are how much longer you plan on owning the property and the difference between your current payment and the new payment. The following example will show how long the occupant will need to stay in the property to make the refinance logical. Current Loan Terms and Payment: Loan Amount: $200,000 / Interest Rate: 6% / Term 30 Year / Monthly Payment: $1,199.10. Proposed New Loan and Payment: Loan Amount: $200,000 / Interest Rate: 5% / Cost of new loan 1 point= $2,000 / Term 30 Year / Monthly Payment: $1,073.64 PLUS additional fee considerations for an Appraisal Cost of approximately $500. Loan difference is $125.46/month. Initial loan Cost $2,500. To make the refinance make sense you would need to own the property for at least 19.93 months or 1.66 years after refinancing.

WHICH IS BETTER FIXED OR ADJUSTABLE RATE MORTGAGE?

Fixed Rate Mortgages – Are great because the payments are the same amount every month for the duration of the loan. Fixed Rate mortgages make budgeting easier due to the consistently. The terms and conditions of a fixed rate mortgage are easy to understand in comparison to adjustable rate mortgages. Fixed rate mortgages are often used by first time home buyers and home owners planning on staying in the home for a longer period of time. The drawback to fixed rate loans is if interest rates drop, you must refinance to take advantage of the rate causing additional costs and paperwork.

Adjustable Rate Mortgages (ARM’s) – In most cases ARM’s allow you to afford a more expensive house. They are good options if you plan on staying in the house less than 5 years. ARM’s are linked to an index rate which can allow you to take advantage of falling interest rates as they will adjust automatically to new rates. However the opposite can also be true when rates are increasing. When ARM’s adjust upwards, there are times when large increases are seen even with caps already in place to help moderate increases on the loan. For example, an annually adjusted ARM for $200,000 may start at 5.00% on a 30 Term, with a stipulation that allows the lender to increase the loan up another 6% interest that would force the interest rate to 11.00% within five years. The payment would then increase from $1,073.64 to $1,904.65, an increase of $ 831.01 per month.

WHICH IS BETTER: 15 OR 30 YEAR TERM?

Determining which mortgage term is right for you can be a challenge. With a 15 year mortgage you will pay significantly less interest, however the monthly payment will be higher. Please use our mortgage calculator to compare these two mortgage terms.

WHAT’S THE DIFFERENCE BETWEEN POINTS AND RATE?

When obtaining a loan many property buyers are confused in the difference between points and rate.

Points are in reference to the initial cost of a loan and a fee collected for the origination of the loan. A point is equal to one percent of the amount being borrowed, a typical cost of a loan is 1 -2 points. (For example, if you were to borrow $200,000 to purchase a property and the lender terms were 1-1/2 points, your loan would cost $3,000).

Rate when specified in loan terms is the interest rate that is charged for the use of money. An interest rate is often calculated on an annual percentage basis. Interest rates vary from day to day as a result of inflation and Federal Reserve Policies. (For example, if a lender (like a bank)) charges a customer $50 in a year on a loan of $1,000.00, then the interest rate would be = 5%).