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Should I Consider a Refi?

Posted by The PerfectHouse Team on Sunday, February 15th, 2015 at 8:40am.

Our goal is to share the secrets and give you tips that can save you tens of thousands of dollars over the life of your mortgage. 
 
Last week we featured a blog post sharing the reasons why interests had fallen along with gas prices. Stated simply, gas prices impact Inflation and mortgage interest rates are also tied to the risk of inflation as the Fed attempts to manipulate the cost of money. As with any commodity, both gas prices and mortgage interest rates change daily. 
 
This week gas prices in Hampton Roads rose approximately 7.5% and the quotes our clients were receiving for conforming mortgage rates week over week rose approximately 10%, but they are still holding well under 4% for most 30 year fixed rate mortgages according to Steve Rockefeller of George Mason Mortgage.
 
If inflation fears begin to increase, home owners will see an increase in the cost of ownership in the form of their mortgage interest rate. 
 
Barry Habib, a contributor to the Fox Business Channel, recently shared a very simple formula, pictured below, to determine if a conversation about refinancing your home may be beneficial.
 
 
 
Example: $125,000 / $280,000 ( Your Loan Balance) = .446. What this means is that if you refinanced your mortgage, the new interest rate would have to be at least .45% lower than your current rate to make it worth consideration. 
 
But Wait! There's Much More! Before you start calling lenders or your bank use the following tips to go deeper in the weeds. 
 
Your goal should be to save money monthly with no increase to the amount of your current mortgage payoff. You may have other motives or goals that should be discussed with a processional financial adviser before applying for a mortgage product. 
 
1st Ask Yourself: How long do I plan to own this home before planning a move? If there are costs involved in the REFI they could be added on to your loan balance. It's true your monthly cash outlay will be lower but it sometimes takes 48 or even beyond 60 months before the monthly savings equals the amounted added to what you owe the bank in the event of a sale.  Many Lenders Do Not Want You To Know or Consider This! Why? Because they get paid when a new loan is originated and your REFI is a NEW LOAN!  You need to know what year of a 30 Year Term are you paying into currently. Resetting the amortization or your mortgage may also have a cost over time. 
 
MYTH: There is no such thing as a No Closing Cost Mortgage. Mortgage money always has acquisition costs priced into the final APR Rate. The closing fees are either disclosed and charged up front in cash for fees or disclosed but hidden in the final APR interest rate you pay in any mortgage.
 
SIMPLE EASY WAY TO EXPOSE THE CLOSING COST/INTEREST RATE GAME: Ask every lender the same question and make them answer and fit in the same box to cut through the smoke and mirrors!
 
Make them Deliver a Good Faith Estimate with the Following Terms:
 
ALWAYS ASK... 
 
1. For a 60 Day Interest Rate Lock with ZERO Origination Points and ZERO Discount Points what is your current interest Rate.
 
2. What, if any, underwriting or administrative fees does your firm charge for this loan. (This dollar amount will be printed on the GFE, it's required by law).

3. You need to know what your current pay off balance is for your mortgage as of today. (Contact your lender for this, if it is not your loan balance on your statement).

4. Make EVERY lender you are shopping use the exact same title insurance, taxes and Hazard/Flood insurance estimates on each Good Faith Estimate. (If they all use the same amount , you'll avoid confusion).

5. Make them quote the same number of months for the pre-paid escrows so that you can be sure they do not "Short" the estimate to look better than another lender, then surprise you with a higher rate later or more fees at the last minute. 

Lastly- make each lender show you the exact amount on your new mortgage! For a True No Closing Cost REFI it should be very close to the current payoff of your mortgage BEFORE the REFI. If it is higher, they added the fees to the amount you owe. 
 
Now you can put at least three quotes side by side and with all factors being equal and you can clearly see the Real impact on your savings and/or costs. 
 
Hopefully you now see how there are ways to protect yourself from the hype of heavy advertisers. The Realtor you choose should also have a command of these concepts. Don't just use their lender blindly, make them compete. 
 
Think about it this way. If all the money is printed on the same printing press and the Federal Reserve controls it's flow into the market place, then logically, at the end of the day in most cases it should cost the same. You either pay Upfront or Over Time in the Rate.  Your lender and financial adviser should be consulted to be sure any move is considered carefully and you have a clear focus on the Big Picture impact on your goals and plan for the future. A lower interest rate or monthly payment, believe it or not, may NOT be in your best interest. 
 
Legal Disclaimer: This Blog post is intended to be entertaining and educational. The PerfectHouse Team, Charlie Laurens and Rose & Womble Realty LLC are not financial advisory nor lenders. We always recommend that before making any financial decision that you consult the appropriately licensed professional for guidance. The information above is simply designed to be a common sense guide to begin a conversation about your personal options. Every situation is different and should be approached in the context of your needs and goals. Rose and Womble Realty supports Equal Housing Opportunity. George Mason Mortgage is an Equal Opportunity Mortgage Lender.

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