Zack Childress – What You Should Know Before You Refinance

Refinancing is a great tool or avenue depending on where you are in your life situation. I’ve always been a fan of refinancing for the right time or the right moment.

Refinancing should not be done just to save a half of a percentage or even a percentage.

From my experience as a mortgage company owner is that most refinances don’t even make sense, unless you are saving at least a point and a half off of your interest rate. When you add in your fees, new closing fees, and commissions to the brokers and so forth, it actually raises the loan to where it doesn’t make financial sense.

If you are just trying to refinance for what is known as a Rate and Term, you are in the process of refinancing your property because there is equity in it and you have realized that you can refinance to pull some of that equity out to either a) Invest in yourself and your new business venture or your education or b) To invest that capital into some type of instrument or real estate to make a return on investment that is greater than the yield you are paying on the refinance.

What do I mean? If the capitol you are extracting out of that property is yielding a 6% annualized rate that is amortized, you need to make sure that whatever you are investing that refinanced capitol out into something that is giving you a greater rate of return than what you are paying for the capital.

Those are 2 ways of looking at refinancing. I am definitely a fan of refinancing for the right reasons and at the right time.

There are 5 things that I have found in this article that I think are great for you to look at and consider when you are going to refinance.

Number 1:

Making a significant down payment. That can be a great way to lower your rate if you are trying to get a better Rate and Term.  If you have raised or saved $10,000 to $15,000 thousand dollars, you might want to put that down to get a better Rate and Term.

Number 2:

Watch out for pre-payment penalties. Most loans don’t carry them anymore, but some loans still do. It is a way for a mortgage company or a lending institution to tack on more fees than if you try to refinance them out early. Remember, the longer you hold that loan with them the more money they make.

Number 3:

Keep your Credit in shape! I am a huge fan of this. You should always be monitoring your credit. Stay above the 620 mark and you will be just fine.

Number 4:

Keep your Home in shape.  Don’t let your home get run down in disrepair from lack of maintenance. That will affect an appraisal when you go into the refinance.

Number 5:

You want to focus on the right target. What type of loan are you going to go after for a refinance? Is going to be a 15 year or a 30 year? What are you looking for? Remember, if you can pay more per month then it might make sense to get a lower term because you will ultimately pay less for the property in the long run.

Take some time, read this article. It has some great insight into refinancing. That’s my 2 cents. Leave me some comments with yours.

5 ways to think ahead about refinancing

Want to take advantage of low rates? These tips can ensure you’re prepared

By MSN Real Estate partner Aug 15, 2014 9:59AM

By Richard Barrington, ShopRate

You can’t control mortgage rates.

That simple fact can give refinancing something of a lottery feel — some mortgage borrowers are lucky enough to get the opportunity to refinance, while others are stuck with the same rate for the entire life of their mortgages.

Still, while there is an element of luck in the movement of refinance rates, there is also some degree of planning that determines who can refinance. This is because the movement of refinance rates is just one factor that determines whether you will get a chance to refinance. There are a number of other things that have to line up, as well.

Making sure everything lines up when the time comes requires thinking ahead — beginning from when you choose your initial mortgage. Here are some of the ways thinking ahead can help you be ready to refinance if rates give you the opportunity:

  • Make a significant down payment:
  • To get the most competitive mortgage terms these days, you are likely to need a 20 percent down payment. If that seems like a burden, keep in mind that a large down payment also puts you in a better position to refinance later on. A bigger down payment gives you a healthy equity cushion, leaving you less chance of finding your loan under water due to price fluctuations.

  • Watch out for prepayment penalties:
  • When choosing your initial mortgage, pay attention to any penalties for early repayment of the loan. These penalties often diminish over time, but a steep enough penalty could preclude you from refinancing in the early years of the loan. Remember, the opportunity might not come up more than once; and in any case, the sooner you refinance the more you can save, so even a penalty that applies over the first few years could turn out to be an important obstacle.

  • Keep your credit in shape:
  • Just because you have your mortgage does not mean you can become careless about your credit usage. If you want to refinance, chances are you will have to qualify all over again, especially if you want access to the best mortgage rates.

  • Keep your home in shape:
  • Just as with a purchase mortgage, refinance lenders are going to want an equity cushion between the value of your home and the amount you are borrowing. So it is important not to allow the value of your home to deteriorate because of damage or poor maintenance.

  • Focus on the right target:
  • When you track rates to see if refinancing makes sense, be sure you are looking at the right types of mortgage. If you started with a 30-year loan, you should probably focus on 30-year refinance rates initially, but after several years of principal payments refinancing to a 15-year loan might be a better fit. In the last 10 years of the loan, a short-term adjustable-rate loan might even make sense.

The irony about refinancing is that the best situation is never to have refinance rates go low enough for refinancing to make sense — that would mean you had been getting the lowest mortgage rate possible all along. Thinking ahead can help in this respect too, by buying when rates are low and comparing mortgage rates to get the best deal right from the start.

 

http://realestate.msn.com/blogs/listed-homerefinancing.aspx?post=2b08e9eb-7ae1-4352-aa49-e440e9c0299b

 

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