Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 8, 1992 TAG: 9203090242
SECTION: HOMES PAGE: E-1 EDITION: METRO
SOURCE: JANE BRYANT QUINN
DATELINE: LENGTH: Medium
For those new at this game, you refinance when you pay off an old, high-rate mortgage with a new loan at a lower rate. Here are 10 things a refinancer needs to know today:
1) A new mortgage carries upfront costs. There are closing fees, like paying for an appraisal and title insurance, and "points" (a point is 1 percent of the mortgage - $1,000 on a $100,000 loan). The bank will usually finance your points by adding them to the mortgage balance. That saves money upfront but adds to the cost of the loan long-term.
2) You can trade off the interest rate against points. A fixed-rate loan at 8.85 percent might cost 2.5 points. But if you'll pay 9.1 percent interest, you may get the loan for no points at all. Which deal is better? If you'll be in your house for just a few years, take the no-point loan. If you'll be there, say, five years or longer, pay the points, in cash if you can.
3) The best deal, for those who will move within five years or so, is an adjustable-rate mortgage. First-year costs are running 5.9 percent with 2.5 points, says HSH Associates of Butler, N.J.
4) When looking for refinancing, start with your own lender, who may cut you a superior deal.
5) Once you've heard what your present lender will do, check the real-estate pages of your newspaper for a low-rate lender and get that lender's terms. Your own bank might improve its offer if you show it that you can do better somewhere else.
6) Mortgage rates have edged up by a half a point over the past month. So when you file your application to refinance, you might want to lock in the current rate.
To "lock," you pay a fee that guarantees you today's interest rate for the next 60 to 90 days. That fee is usually deducted from your upfront costs when the loan is closed. If you back out of the loan, however, the fee is usually forfeited.
If you don't lock, you'll get the rate that prevails on the day you close. Some banks offer one-way locks: If rates rise, you get the lower rate that prevailed when you applied for the loan. If rates fall by the time the mortgage closes, you get the lower rate. (Read all the fine print in your "lock" document. Some lenders can raise your rate under special conditions.)
7) If you lock in a rate, bird-dog your mortgage to be sure it closes on time. It's taking perhaps a month and a half to close a loan today, compared with three weeks before the refinancing rush began.
You can speed up the process by asking the lender, before your first meeting, what proof you should bring of your income and assets. You may need only your last W-2 form, your most recent pay stub, copies of your bank-account and brokerage-account statements for the last two months and maybe your tax returns. The lender will pull your credit report, so check it for errors ahead of time.
8) If you want only to refinance your present loan, the lender might give you up to 90 percent of your home equity. But you'll be limited to around 75 percent of equity, if you want a larger mortgage in order to take cash out of your house.
9) Around half of the refinancings at BancBoston Mortgage Corp. are for terms of 15 years instead of 30, says chairman Joe Pickett. The shorter-term loans save a fortune in interest rates and bring the day closer when you will own your home free and clear. A 15-year loan may not even be a financial stretch. At 30 years, a $100,000, 10.75 percent loan costs $933 a month. At 15 years, an 8.5 percent loan costs $985 a month. So for an extra $52, you can own your home in half the time.
10) At the very least, repay your new mortgage over the same number of years remaining on your old one. Say, for example, that you've paid for three years on a 30-year loan. The payment schedule on your refinanced mortgage should run for no more than 27 years. Otherwise, you'll pay an extra three years of interest which will lessen the value of refinancing in the first place.
by CNB