Refinancing is the process of adding a new first mortgage to replace an existing first mortgage and/or any other liens you may have. Refinancing can accomplish one or both of the following:
- Reduce your monthly mortgage payment .
- Reduce the remaining term of your loan and thus probably save tens of thousands of dollars in interest over the long-run .
- Withdrawal cash ("tap equity") for such expenses as home improvement, college tuition, or bill consolidation or, for such purchases as a 2nd home, invesment property, car, or major vacation.
NO CASH-OUT REFINANCE
Refinancing can be an expensive transaction, so our advice is to first determine if the savings outweigh the expense of the transaction. As a rough gauge of the expense, pull out your HUD-1 Settlement Statement. This is the paper you received at settlement when you last purchased or refinanced that showed every closing cost. The expenses involved with your proposed new loan will be roughly the same, except
- There will be no transfer tax -- the ownership is not being transferred now.
- Title insurance will probably be a couple of hundred dollars less.
- There will probably be no property test expenses (e.g. home inspection, radon, water, or septic).
The rule of thumb regarding the cost vs. benefit of refinancing is that you need a 1% "spread" between your existing interest rate and today's current rates. For instance, let's say that today's rate for a 30-year fixed rate mortgage is 4.500% with 0 points. Thus you will need your current interest rate to be 5.500% or greater to make the transaction worthwhile.
But, like all rules-of-thumb, sometimes they're right and sometimes they're wrong. We've run the cost vs. benefit analysis for clients when there was only a 0.500% spread in the interest rates to make the transaction worthwhile. At no charge or obligation, we can run the cost vs. benefit analysis for you.
Click here to go to the Cost vs. Benefit Analysis questionnaire.
If you wish to withdrawal cash, we suggest that you first determine the amount of that expense or purchase. For example: If you want to finance some home improvements, determine what you want done, price the job(s), and ask the time frame to complete the work. If you want to consolidate your bills, determine which bills you wish to pay-off, then add up the recent balances.
Now that you've determined the purpose and amount, the next step would to make sure you qualify for the proposed new loan. Prequalification services are performed at no cost or obligation.
Click here to go to the Refinance Prequalification Questionnaire.
** FEEL FREE TO PRINT THIS PAGE TO FOR YOUR REFERENCE **
PA Dep't of Banking
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