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If you are a homeowner who was lucky enough to buy when mortgage rates were low, you may have no interest in refinancing your present loan. But perhaps you bought your home when rates were higher. Or perhaps you have an adjustable rate loan and would like to obtain different terms.
Should you refinance? This brochure will answer some questions that may help you decide. If you do refinance, the process will remind you of what you went through in obtaining the original mortgage. That's because, in reality, refinancing a mortgage is simply taking out a new mortgage. You will encounter many of the same procedures-and the same types of costs-the second time around.
Refinancing can be worth while, but it does not make good financial sense for everyone. A general rule is that refinancing becomes worth your while if the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate. this figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings.
There are other considerations, too, such as how long you plan to stay in the house. Most sources say that it takes at least three years to realize fully the savings from a lower interest rate, given the costs of the refinancing. (Depending on your loan amount and the particular circumstances, however, you might choose to refinance a loan that is only 1.5 percentage points higher then the current rate. You may even find you could recoup the refinancing costs in a shorter time.)
Refinancing can be a good idea for homeowners who:
If you decide that a refinancing is not worth the costs, ask your lender whether you may be able to obtain all or some of the new terms you want by agreeing to a modification of your existing loan instead of a refinancing.
In deciding whether to refinance an ARM you should consider these questions:
The fees described below are the charges that you most likely to encounter in a refinancing.
In conclusion, a homeowner should plan on paying an average of 3 to 6 percent of the outstanding principal in refinancing costs, plus any prepayment penalties and the costs of paying off any second mortgages that may exist. One way of saving on some of these costs is to check first with the lender who holds your current mortgage. The lender may be willing to waive some of them, especially if the work relating to the mortgage closing is still current. This could include the fees for the title search, surveys, inspections, and so on.
The information contained in this brochure is intended to help you ask the right questions when considering refinancing your loan. It is not a replacement for professional advice. Talk with mortgage lenders, real estate agents, attorneys, and other advisors about lending practices, mortgage instruments, and your own interests before you commit to any specific loan.
| Your Present Mortgage Rate | Current Monthly Payment | Monthly Payment Savings at 8.0% | Monthly Annual Savings at 8.0% |
| 14.0% | $1,185 | $451 | $5,412 |
| 13.5% | $1,145 | $411 | $4,932 |
| 13.0% | $1,106 | $372 | $4,464 |
| 12.5% | $1,067 | $333 | $3,996 |
| 12.0% | $1,029 | $295 | $3,540 |
| 11.5% | $990 | $256 | $3,072 |
| 11.0% | $952 | $218 | $2,616 |
| 10.5% | $915 | $181 | $2,172 |
| 10.0% | $878 | $144 | $1,728 |
| 9.5% | $841 | $107 | $1,284 |
| 9.0% | $805 | $71 | $852 |
As you can see, even if you refinanced your mortgage from only 9.0 percent to 8.0, you would start saving immediately and would recoup the entire costs (assuming them to be approximately $3,000) in about 3 1/2 years. In the first month alone you would be contributing more than $70 toward recouping the costs of refinancing, and by the end of the first year, you would have saved approximately $852. The greater the spread between your current mortgage rate and your new rate, the greater your savings.
If you have questions, please send email to Customer Service.
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