Q. Should I refinance?
A. Sometimes it makes sense to refinance. Sometimes it doesn’t. The decision to refinance is rarely based solely on interest rates. For instance, you have to take into consideration things like how long you expect to be in the home; how much equity you have in the home; what your closing costs will be; would refinancing include the paying of points?; will your lower payments more than make up for the closing costs, fees and points if any. Virginia Mortgage Bankers, LLC can help you decide if refinancing makes sense for your situation and to choose the best program for you. In the meantime, our Refinance Calculator can give you an idea if refinancing might be for you. Our interest rates can change many times a day. Please call for our most current refinance rates
Q. Rates Are Low. Is Now A Good Time To Refinance?
A. When interest rates fall, a homeowner should definitely call a lender about refinancing, but he or she should discuss their entire financial situation and goals before making any final decision. Is your goal to lower your monthly payment? Debt Consolidation? Use our debt consolidation calculator and see if it makes sense. Get cash out for home improvements? Buy that second home? Ask your us to provide a couple of refinancing scenarios for you, showing how your loan term length, monthly payment and your total interest expense on the loan will change. After looking at these scenarios, it will be clear whether or not you should spend the money to refinance.
Q. When should I refinance my current mortgage loan?
A. It is often said that you should refinance when mortgage rates are 2% lower than the rate you currently have on your loan. Refinancing may be a viable option even if the interest rate difference is less than 2%. A modest reduction in the loan rate can still trim your monthly payment. For example, the monthly payment (excluding taxes & insurance) would be about $770 on a $100,000 loan at 8.5%. If the rate were lowered to 7.5%, the monthly payment would be about $700, a savings of $70. The significance of such savings in any scenario will depend on your income, budget, loan amount and the change in interest rate. Your trusted lender can help calculate the different scenarios.
Q. Should I refinance if I plan on moving soon?
A. Most lenders will charge fees to refinance a loan. If you plan to stay in the property for less than a couple of years, your monthly savings may not get a chance to accumulate and recoup these costs. Let’s say a lender charged $1,000 to refinance your loan, but it resulted in a monthly savings of $50. It would take 20 months (1,000 divided 50) to recoup the initial costs before you start to realize some savings. Some lenders will charge a slightly higher than average interest rate on refinance loans, but waive all costs associated with the loan. The attractiveness of these loans will depend on the interest rate you are being charged on your current loan.
Q. What fees do I need to pay?
A. In addition to an application fee ($250-350) you will likely have to pay an origination fee (typically 1% of the loan amount). In many cases you will have to pay much of the same costs that you had to pay with your current home loan (title search, title insurance, misc. lender fees, etc.). The sum of these fees could cost you up to 2-3% of the loan amount. If you don’t have the money to pay for associated loan costs, look for lenders that offer ‘no-cost’ loans. These loans will charge a slightly higher interest rate, so ask the lender if it would still make sense to refinance using this type of program.
Q. What are points?
A. Points are costs that need to be paid to a lender in order to receive mortgage financing under specified terms. A point is a percentage of the loan amount (one point = one percent of the loan). One point on a $100,000 loan would be $1,000. Discount points are fees that are used to lower the interest rate on a mortgage loan (you are discounting the interest rate by paying some of this interest up-front). Lenders may express other loan-related fees in terms of points. Some lenders may express their costs in terms of basis points (hundredths of a percent). 100 basis points = 1 point (or 1 percent of the loan amount).
Q. Should I try to pay as many discount points as possible to lower my loan’s interest rate?
A. If you plan on staying in the property for at least a few years, paying discount points to lower the loan’s interest rate can be a good way to lower your required monthly loan payment (and possibly increase the loan amount that you can afford to borrow). If you only plan to stay in the property for a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front. Ask your lender how long it would take for your monthly savings to recoup the costs of the discount points.
Q. What does it mean to lock the interest rate on a mortgage loan?
A. Due to the nature of interest rate movements, mortgage rates can change dramatically from the day you apply for a mortgage loan to the day you close the transaction. If interest rates rise sharply during the application process, it could make a borrower’s mortgage payment larger than he/she previously thought. To protect against this uncertainty, a lender can allow the borrower to ‘lock-in’ the loan’s interest rate, guaranteeing the borrower the prevailing loan rate for a specified period of time (often 30-60 days).
Q. Should I lock-in my loan rate when I apply for a mortgage loan?
A. No one knows for sure how interest rates will move at any given time, but your lender may be able to give you an estimate of where it thinks mortgage rates are headed. If interest rates are expected to be volatile in the near future, you may want to consider locking your interest rate if rising rates will no longer allow you to qualify for the loan. If your budget can handle a higher loan payment or if the lenders lock fee seems excessive for your means, you might want to consider allowing the interest rate to ‘float’ until the loan closing.
Q. I’ve had credit problems in the past. How does this impact my chances of getting a home loan?
A. Obtaining a home loan is possible even with extremely poor credit. If you have had credit problems in the past, a lender will consider you to be a risky borrower to lend to. To compensate for this added risk, the lender will charge you a higher interest rate and usually expect you to pay a higher down payment on your home purchase (typically 20-50% down). The worse your credit is, the more you can expect to pay for an interest rate and a down payment.
Q. I’ve only been late a couple of times on my credit card bills. Does this mean I will have to pay an extremely high interest rate?
A. Not necessarily. If you have been late less than three times in the past year, and the payments were no more than 30 days late, you probably have a pretty good chance at getting a home loan at a competitive interest rate. Lender guidelines will vary, but most lenders will excuse a couple of minor ‘late-pays’ as long as the borrower can provide a reasonable excuse explaining them (i.e. job transition, illness). If the late-pays were 60+ days late and cannot be explained, you may have to settle for a higher interest rate.
Q. How can I tell who has the best deal on financing?
A. When comparison shopping among lenders, remember that a lender can structure financing for a borrower several different ways. A lender can charge higher fees and offer a low interest rate while another may charge a slightly higher interest rate with lower fees. In order to make an ‘apples to apples’ comparison between lenders, ask each lender what their interest rate is for a zero discount point loan (based on a 30 or 60 day lock period).
Q. Are there really loans with “No Closing Costs”?
A. There are few loans that truly have no closing costs. Sometimes lenders will not charge application fees and agree to pay the appraisal and title fees, but they may increase the rate. Lenders can also roll the costs into the amount of your loan. So, because you’re not paying costs up front, it’s called “no closing cost” loans. While slightly increasing your mortgage might be acceptable to you, keep in mind that it’s not really a cost-free loan.
Q. Should I choose the lender with the lowest interest rate and costs?
A. There are primarily two things to consider when choosing one lender over another: the quality of service being provided and the cost of services provided. Quality of service is especially important to those who have never purchased a home. First time homebuyers will likely have many questions regarding the financing process and available loan options. A good lender should be able to get you through the financing process leaving you confident that you made a sound financial decision.
Q. How long does it take to refinance?
A. Refinancing normally takes between two and four weeks, depending on a few things. Do you have a recent appraisal? Are you in an area that appraisers can get to easily? Are there plenty of comparables in your neighborhood? Often times, the appraisal is what takes the longest to obtain. And during refinancing booms, appraisers can be difficult to schedule