6 Things to Consider Before Refinancing
By Rob Sallay
you’re a homeowner in need of some quick cash.
you want to consolidate your debts so you have better control of your
a lender is urging you to refinance because interest rates are low, and
he has a too-good-to-be-true deal that will shorten your current loan’s
are 6 essential questions to ask yourself before making the decision to
What’s My Motive—and What Will It Cost Me?
you even consider a refinance, ask yourself this fundamental question:
“Why do I need it?”
times, people take out a new, larger loan to pay off credit cards, automobiles
or even to purchase another home,” says Norm Bour, host of the nationally
syndicated U.S. radio program The Real Estate & Finance Show, and
an experienced mortgage lender. “Sometimes they need the money to
do home improvements or renovations.”
however, you want to lower your current loan payments or switch to a different
type of loan, you must calculate the benefits before going the re-fi route.
someone is going from a fixed loan to another fixed loan, my general benchmark
is to see a 1% reduction of interest rates to justify it,” says
Bour, who also teaches money-management classes in Southern California.
“Sometimes the borrower goes from a fixed-rate loan to an adjustable
to lower his payments. Sometimes he does just the opposite—maybe
to get away from interest-rate volatility. These are very personal decisions,
specific to each individual client.”
How Long Will I Be in the Property?
may already know—or suspect—that you will not live in your
current home beyond a certain timeframe (perhaps 5 years). If this is
the case, why would you even consider a 30-year loan?
an adjustable-rate loan or a ‘hybrid’—say, a 5-year
fixed, then converting to an adjustable—makes the most sense,”
What Am I Worth?
your homework before trying to qualify for a new loan. You should know:
The approximate market value of your property, as “loan to value
(LTV) is one of the primary factors that control interest rate,”
Your credit score, which will affect your overall ability to secure a
loan, as well as the interest rates offered and the options available
Do I Have a Competent Loan Officer?
certain cases, refinancing may not yield “a monetary savings, per
se,” Bour says. This means there must be “compelling reasons”
to secure a new loan, he emphasizes.
good loan officer will ask a series of questions to help the borrower
identify his best option,” Bour says. The officer should:
Assess your current monthly cash flow and potential future risks.
Calculate your monthly savings if you were to refinance.
Determine how long it will take you to break even.
Fully explain the different types of loans and interest structures.
Disclose all closing costs and “hidden” fees (origination
fees, escrow, title, underwriting, interest, taxes, insurance, prepayment
Treat you with respect and as an individual—not come up with a one-size-fits-all,
cookie-cutter approach to your financial future.
Do I Need a Second Opinion?
lenders have an interest (pun intended) in having you sign on the dotted
line, it’s often worthwhile to seek advice from a certified financial
planner or other expert who has no investment or agenda when it comes
to your refinancing decisions—especially if you’re a first-timer
who lacks fluency in real estate issues.
your limitations, and have enough smarts to ask for help. A lot of money
is riding on this decision, so never let pride get in the way of making
the right choice.
Will This Hurt My Credit Rating? “While refinancing, in and of itself,
will do very little damage to credit scores, what will cause harm is excessive
shopping amongst too many lenders,” Bour says. “Each time
a credit report is pulled by a ‘potential grantor of credit,’
it shows up as an ‘inquiry’—and each inquiry drops the
credit score by a little bit.
the United States, the laws have changed over the past few years, and
inquiries do not have the same negative impact as they used to. Most credit
bureaus will now look at a ‘cluster’ of inquiries over a short
period of time as being one inquiry.”
Relief specializes in assisting Australian families with mortgages
by making their monthly repayments more manageable and decreasing
their overall debt and total interest paid over the life of their
mortgage. Mortgage Relief is a mortgage refinance provider that
it part of Australia’s largest Debt Relief™ organization.
Visit Mortgage Relief on the web at http://www.mortgagerelief.com.au
or contact them directly on 1300 789 014.