mortgage calc: Some things to consider before you refinance
New FTC rules combined with low interest rates are boon for borrowers
By Far The Most Complete Diy Loan Mod
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Copyright 2009 Reuters Oct.
8, 2009 found at msnbc.msn.com
WASHINGTON - Don't look now but mortgage rates are
really, really low — practically at record low levels. Homeowners who still
have adequate equity might want to jump on this and refinance one more time. Or
start using their home equity line again. Or switch to a fixed-rate loan. Or
give up on their plans to pay off their home quickly and stretch it out as long
as possible.
It's all good news for homeowners (and would-be
homeowners), especially because some new federal rules are kicking in which
should provide some added protection to mortgage consumers. On October 1, the
Federal Trade Commission started policing new regulations requiring more
disclosures about rates and payment in mortgage ads. And in January, new rules
requiring better, clearer closing cost estimates go into effect.
Here's what you need to know now if you want to jump on
today's good rates.
Rates are good
They really are good. Typical rates listed on www.Bankrate.com
this week are 5.1 percent for a 30-year fixed-rate loan, 4.58 percent for a
15-year fixed-rate loan, and 4.18 percent for a variable-rate loan. Some
refinance rates and rates for borrowers with the best credit scores are even
better. That means anyone with adequate home equity and cash flow should
consider borrowing long, at fixed rates. Many economists see rising rates and
inflation coming after the economy recovers; getting a lock on under 5 percent
now may seem like very cheap money going forward.
Fixed is better
Variable-rate loans are not a good bet, except in a few specific conditions.
While their rates are extremely low right now, the prospects are good that those
rates could rise and force higher minimum monthly payments down the road. A
variable-rate loan might be a good choice for someone who is quite certain they
will be selling their home before the rate starts to adjust, typically after the
first five years. It might also be a reasonable choice for a pre-retiree who
expects to put a lot of extra cash toward their principal over the next five
years, so that the loan is effectively paid off before it starts to adjust.
Maybe it’s not for you
Refinancing may make sense, and it may not. If you've already got a
low-interest, fixed-rate loan and you are on track to pay it off in the next few
years, you may never make back the closing costs with a refi. Or you may delay
your ''debt-free date'' beyond when it's comfortable for you. Use an online
calculator, such as the one at Mortgage-calc.com
to see whether you'll pick up savings that are worthwhile.
Shop around
It's easier to shop than it used to be. The first generation of
online mortgage shopping websites were mainly mortgage brokers and had limited
numbers of lenders behind them. The newer sites offer more mortgage choices and
data while requiring less up front information from borrowers. You can get some
very specific rate quotes (including closing cost and payment estimates) by
checking Mortgage
Marvel and Mortgage
101. Compare those rates with the ones you can get from the credit
union you already belong to, the bank around the corner, and at least one large
national lender.
Credit score matters
Don't even try this if you don't have a good credit score. Lenders continue to
be more picky than they used to be, and have generally raised standards for
borrowers. If your credit history has been spotty, you may want to invest a few
months in careful credit-card management to improve your history and your score.
You can get your FICO score at www.myfico.com,
for a fee. You can get a free approximation of your score at www.creditkarma.com.
Beware of the closing costs
Mortgage lenders are supposed to provide good faith estimates of costs including
appraisal fees, title searches and the like that will be included in the full
price of your loan, and to do that within three days of your loan application.
But sometimes those prices change between the time you get that estimate and
when you go to closing. After January, those good faith estimates will have to
list charges by whether or not they can change, and by how much, between the
estimate and the settlement. You may also be able to negotiate some of those
items down, by choosing your own title search company or appraiser, for example.
Track payments
New advertising rules require lenders to offer borrowers the full payment stream
they expect to be associated with the loan. That's good, for the long term. Many
people got in serious mortgage trouble because they underestimated how much
their monthly payments could go up when variable-rate loans readjusted. But the
new rules also require lenders to base those future assumptions on current
interest rates. In a falling rate environment, that would provide maximum
protection to borrowers. But today, with rates at rock-bottom lows, those
payment projections could be wildly understated. Buyer beware.
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