Just as when you purchase a new home, the process of refinancing can be a little daunting. In addition, while you have various costs associated with closing on an initial mortgage loan, refinancing a home also means associated costs. Therefore, if you already own a home but want to refinance, you need to understand what costs would be included. Keep in mind that people refinance for a number of reasons. This may come at the end of a Balloon loan, for debt consolidation, to take out equity, or perhaps to lock into a lower interest rate.
Regardless of why you are refinancing your home, remember that a penalty for paying off the original loan ahead of schedule is common. For this, you want to read the fine print on your mortgage contract to determine if a penalty would or would no apply. Then, the amount for refinancing your home would also be based on points, current interest rate, settlement costs, and so on.
Because a refinance could be subject to so many different angles, we strongly
recommend you talk to several qualified lenders so any questions you might have can be answered. With these answers, you will have a much better understanding of possible points, attorney’s fees, and appraisals so you know the right decisions to make.
Next, you can estimate the approximate amount of time it would take to recoup any costs associated with refinancing. For this, simply divide the amount of closing costs by the difference of the new and old mortgage payments, which is what gives you the monthly savings. Something that many people are unaware of is that just as you would shop around to locate the best interest rate for your loan, you can also shop around for points. Since each point adds approximately one-eighth to one-quarter of 1% to the interest rate, doing this comparison-shopping is vital.
Other considerations for refinancing a home includes determine the best blend of points and interest rates since you want to balance these well. Additionally, the longer your loan stretches out the more expensive the points. For that reason, if you plan to live in your home for a long time, paying additional points to help reduce your lower rate would be a good decision.