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home mortgage refinance loan
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The old rule of thumb used to be that you shouldn't refinance unless the
new interest rate is at least two percentage points lower. However, many
lenders are now offering zero point loans and low-cost refinancing.
Therefore, even if your rate change is less than one percentage point, you
may be able to save some money by refinancing.
How
many "points" must you pay to the lender to obtain the loan?
In refinancing, lenders
usually offer a range of interest rates at different amounts of points. A
point equals one percent of the loan amount. For example, three points on
a $100,000 mortgage loan would add $3,000 to the refinancing charges.
Shopping for points as well as interest rates may save you money. As a
rule of thumb, each point adds about one-eighth to one-quarter of one
percent to the interest rate the lender is offering. Generally, the
lower the interest rate on the loan, the more points the lending
institution will charge. Some lenders offer refinancing with no points,
but generally charge higher interest rates.
To decide what combination of rate and points is best for you, balance the
amount you can pay up front with the amount you can pay monthly. The less
time that you keep the loan, the more expensive points become. If you plan
to stay in your house for a long time, then it may be worthwhile to pay
additional points to obtain a lower interest rate.
Refinancing your mortgage can provide you with a monthly windfall of extra
cash, shorten the term of your mortgage and help you build equity faster.
When
you refinance your original mortgage, you swap it for another, often
because the rate of the new mortgage is cheaper. With the cheaper rate
comes smaller monthly payments and extra cash each month.
Some lenders may offer to
finance the points so that you do not have to pay them up front. This
means that the points will be added to your loan balance, and you will pay
a finance charge on them. Although this may enable you to get the
financing, it also will increase the amount of your monthly payments. |
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