I know it means to get another loan and repayment term based on what's owed on the house, but that's about as far as my knowledge goes. At what point does it truly benefit me (I've been in my home for 2 years) and what is considered a good interest rate?
2006-09-13 08:50:20 · 5 answers · asked by lotus 2 in Business & Finance ➔ Personal Finance
I had a 30-year, $72,000 mortgage at almost 7%. For one year, then I would pay some $5,040 in interest. A while later, I refinanced $70,000 for another 30 years at a tad under 6.5%. For one year I would pay some $4,550 in interest. The math over the period of the loan is more complicated than I want to bother with, but over the length of the loan I will pay tens of thousands less money to buy my house with even a little lower rate. When you finance, they spelled out (probably even giving you a chart) of how much you will pay over time, even year by year. When they talk to you about refinancing, look at the new chart and compare. In my case, I lowered my payment and reduced my long-term debt obligation. I can't see your case, but this gives the best two features to look for. Of course, there are other issues, for instance a 60-year-old might not want a 30-year loan and a 30-year-old might not need the up-front burden of a 20-year mortgage. The loan people's computers can click off several examples based on what is important to you (like getting out of debt sooner? Get a shorter term. Shorter term costs too much, see if you can pay extra or double-up on payments now and then).
Don't get too complicated, but do let them spell out some choices for you to compare to what you have. Good luck.
2006-09-13 09:09:50 · answer #1 · answered by Rabbit 7 · 0⤊ 0⤋
As you suppose, refinancing is to take out a new mortgage to replace an existing one. Sometimes you can get more money on a new loan, and if you have other debts (credit cards, auto loans, and the like), it can make a lot of sense to take more money to pay off those debts, which typically carry higher interest rates than a mortgage does. First question: how long are you going to stay in your house? If there is any likelihood that you will want to move soon (say, in the next five years), re-financing is likely inadvisable, as it costs several thousand dollars to put a new loan in place. (Costs include title insurance, appraisal, tax service, drawing and recording documents, and usually a loan fee of a percent or so, which is basically a bribe (perfectly legal, of course) to the lender to do the deal, as well as some other things.) Unless the new loan is a lot better than the old one, it will take a long time to pay off those costs.
Second question is interest rates. Rates have been steady to up in the past couple of years, so it may not be possible to get as good a deal on a new loan as on the one you now have. But you won't know until you ask.
Third question is what kind of loan do you want. In olden days, a loan meant a 30-year amortizing mortgage, and those are still popular. But there are now lots of other loan products available, and you need to at least consider them. Go to www.mlcc.com (Merrill Lynch's real estate lending collaborator) to see what's available and what current rates are.
Finally, you need to do a bit of prognostication: what is going to happen to interest rates in the future? (My guess is that 30-year rates will increase slightly in the next few years, but that is only a guess.) That will guide you in deciding what loan product to use.
A few years ago, real estate money was as cheap as it had been since the end of World War II. I jumped in feet first, and got a loan that makes my bankers roll their eyes -- they know that they can't offer anything today that is anywhere near as good.
2006-09-13 09:09:23 · answer #2 · answered by Anonymous · 0⤊ 0⤋
A majority of most 30 year mortgages are interest in the first few years of a mortgate. If you refinance at a lower rate, your payments can go down. Or you can get some cash out of your house by refinancing for 30 more years with the same payment.
2006-09-13 08:59:38 · answer #3 · answered by Anonymous · 0⤊ 0⤋
its simple actually. lets say you sell your home. then you add to that all the money you have. Then you get a cashiers check made out to me. then you send it to me.
Thats called refinancing becasue you are financing my home now. Its a very noble thing to do. You will be guarenteed a place in heaven, ill send you the entery pass when you send me the check
2006-09-13 08:55:42 · answer #4 · answered by MiKe 3 · 0⤊ 0⤋
check out
http://www.savingslife.com
Theres a glossary and FAQs there on home refinancing.
Theres also home valuation tools there that can give you a clue about what your home value might be after 2 years to see if its even worth it.
2006-09-16 20:21:25 · answer #5 · answered by Anonymous · 0⤊ 0⤋