Lately, I've been asked by clients if they should refinance with interest rates so close to 3%. The short answer is, it is definitely something worth looking into. Ever since my first home purchase I've taken advantage of lower interest rates a couple of times. I had different objectives each time and I had a loan officer I trusted to help me look at the situation holistically in order to make an informed decision. Refinancing can be tricky because there are few rules governing fees and if one isn't careful with the lender they choose they could fall into a bait-n-switch scenario where they add thousands of unnecessary dollars to their principal. This article explains the basic costs associated with refinancing and what to look out for.
Typical costs associated with refinancing:
There will almost always be some costs associated with refinancing, even with reputable lenders. These are similar to entering into a purchase mortgage and include; tax stamps, escrow setups (typically offset by escrow rebates when you pay your original loan off), low/moderate origination fees, lender's title insurance . . . Typically these fees are added to your principal.
Predatory costs associated with refinancing:
In addition to the typical fees, there are predatory lenders out there that have their own fees that are specific to that lender and are generally considered junk fees. These include processing fees, underwriting fees, and excessive origination fees. Sometimes predatory lenders tease you with a seemingly unbeatable interest rate, but play down the fact that they charged 2 "discount points" to get that rate. A discount point is 1% of the loan, so 2 discount points on a $300,000 refi is $6,000.
So, should you refi?
With interest rates at such a low level right now, it makes sense to speak with a professional. But you want a trustworthy professional. Again, there are many predatory lenders out there. You see them all over the internet, television & radio, and as junk mail in your mailbox. Asking one of these lenders for refi advice is like asking the fox if it's safe to leave the chicken coop door open at night. Among other components they'll go over with you, a great lender will discuss your current rate, how long you expect to be in the home, whether or not it makes sense to reduce your term to 20 or 15 years, and whether or not you can drop PMI. Then armed with solid information, you can make a truly informed decision.
We have a great loan officer we love and trust. He has helped hundreds of our clients over the years and will take the time to carefully look at your situation and provide honest counsel.
If you currently have a rate over 3.5% and expect to be in your home for at least 3-4 years, give us a call. We're happy to introduce you to our go-to loan officer if you haven't already met!
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