HARP- Home Affordable Refinance Program (Fannie Mae)

Refinance

Are you refinancing primarily to lower your rate and monthly payments? Then your best option might be a low fixed-rate loan. Maybe you have a fixed-rate mortgage now with a higher rate, or maybe you have an ARM -- adjustable rate mortgage -- where the interest rate varies. Even if it's low now, unlike your ARM, when you qualify for a fixed-rate mortgage you lock that low rate in for the life of your loan. This is especially a good idea if you don't think you'll be moving within the next five years or so. On the other hand, if you do see yourself moving within the next few years, an ARM with a low initial rate might be the best way to lower your monthly payment.

Are you refinancing primarily to cash out some home equity? Maybe you want to pay for home improvements, pay your child's college tuition bill, take your dream vacation, whatever. Then you'll want to qualify for a loan for more than the balance remaining on your current mortgage. If you've had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you may be able to do this without increasing your monthly payment.

Do you want to build up home equity more quickly, and pay off your mortgage sooner? Consider refinancing with a shorter-term loan, such as a 15-year mortgage. Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and will build up equity more quickly. If you have had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment -- you may even be able to save!

For example, let's say years ago you took out a $150,000 30-year mortgage at eight percent. Your payment is about $1,100, exclusive of taxes, insurance and so on. If your balance today is down to $130,000, you might take out a 15-year mortgage at six percent and have an almost identical monthly payment. This is a great option for people whose main goal is not to save money on their monthly payment but rather want to build up equity and pay off their home more quickly.

What does it cost to refinance? What are the benefits?
Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least a point lower? That may have been true years ago, but with refinancing dropping in cost over the last few years, it's never the wrong time to think about refinancing into a new mortgage loan! Refinancing a loan has a number of benefits that often make it worth the up-front expenditure many times over.

When you refinance your mortgage, you might be able to lower your interest rate and monthly payment -- sometimes significantly. You may also be able to "cash out" some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation -- whatever you wish! With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.

You may also be able to end the PMI (mortgage insurance) payments if you have the equity in your home. You can either save that money each month or continue paying the same amount you used to but apply the previous PMI payment directly to principle.

All these benefits do cost something, though. When you refinance, you're paying for most of the same things you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender's title insurance, underwriting fees, and so on.

You might have to pay a penalty if you refinance your previous mortgage which has a pre-payment penalty on it. These penalties are illegal in some places, and more often than not when you have one of these penalties on your current mortgage it applies only for the first year or two. We'll help you figure this out.

You may want to pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes.

Speaking of taxes, if you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers consider. We can help you do the math!

Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. We'll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes. We look at all angles for you and even show you a total cost analysis to help you see where the savings are best.

If you would like to know exactly what rate you qualify for, Apply Online, and I will give you an accurate assessment of what you qualify for.

If you have any questions, just click Contact Us or phone Laura at 623.255.1014.