Shop Around For A Refinance

When shopping around the mortgage brokers for a change of lender and home loan contract, do not be mesmerized by the price. By price we mean of course the rate of interest and costs. These are nearly rock bottom at this time and therefore very tempting but there are three other important factors that you must take into account before committing yourself to this major money product. Know, in detail, your aims with regard to money over the next year, two years and through the next life stage that you are coming to.

Could a variable rate of interest be for you? Because the bank rates are so low, most refinance shoppers want to nail down their repayment with a set interest rate. But remember that while these deals are ‘fixed’ they are not permanent and there will come a time when they will become adjustable and change, probably upwards. Ask yourself whether you are likely to sell your property within the time frame of this review. If your answer is yes or probably then you could reduce your monthly repayments with around .25% less on the interest rate of a variable loan.

Remember, though rates typically go up after the fixed period, there can be times when they actually go down. Knowing exactly what will happen to your rate in the future is difficult because adjustable rates are based on an index. The index can be any one of a number of indices that mortgages are tied to. The 1 year treasury, 6 month LIBOR, MTA, COFI are some of the common indices mortgages follow. Because the final rate is based on the margin (the percent above the index) plus the index (the variable part), it’s tough to know exactly what may happen.

Your best bet is to see what the index has done in the past and make a determination what may happen to your rate in the future if the index stays the same.

If you can answer ‘no I’m staying put for the foreseeable future’ then a second refinance option is something for you to consider. ‘Paying Points’ buys not only a lower rate but also a potential tax deduction. The price of points is expressed in percentage of the loan balance with 1 point equal to 1 percent of the loan balance.

The days of one mortgage in a lifetime are long gone. The wise homeowner is prepared to remortgage when the conditions are ripe for it. With this in mind the third factor to weigh up when refinancing is the penalty payments for early termination. Think about a mortgage that does not have any termination charges. They are available but will attract slightly higher interest rates. Looking past this drawback you will keep more of your capital gain when you come to sell your property or remortgage the next time.

Refinancing your major asset is not as simple as just comparing interest rates. Know your own circumstance and future intentions and select the best deal to meet your individual needs. Selecting the wrong mortgage can sometimes cost you thousands of dollars over the life of the loan so it’s a good idea to plan it right from the beginning. Ask questions of your loan officer. Find out what they recommend and why? You may find that their idea of tolerance for risk is significantly more than yours and this could be a problem.

Of course, when in doubt, choose a fixed rate over an adjustable especially if there is not a large difference in start rate between the adjustable to the fixed.