If you are like the rest of Americans during this time, then you are probably trying to understand how you can achieve your financial goals for 2012. Refinancing might be a part of the strategy for your 2012 budget. Here is a brief guide to refinancing, and what you should know if you are considering it in the near future:
Why do people refinance?
The principal goal of refinancing is to lower your monthly mortgage payments. If you notice that rates have significantly dropped since you obtained your first mortgage, then you might be able to refinance – meaning adjust your mortgage to the new lower rates resulting in a lower monthly obligation. However, there are some other reasons people would seek refinancing on their mortgage. For example, some individuals might be seeking the ability to tap into the equity that they have built up in their home. This is known as a “cash – out –refinancing” which means that you would take out a new mortgage based on the home’s current appraisal or worth, then you would pay off the remaining balance on the old loan, and pocket the difference. So if you owe $50,000 on your $200,000 home, then you might refinance a $75,000 amount, where ideally you would receive a better rate on the $50,000 you owe for your home, and then you would get $25,000 in cash. Other reasons people might refinance include reducing the length of mortgage term, or to switch to an adjustable-rate-mortgage (ARM). ARM financing means that your rate would change based on conditions in the market.
When is it a good idea to refinance?
Typically, as an old rule of thumb, it was considered timely to refinance when the current interest rate was 2 percentage points below your rate. However, you should really focus on understanding how long it will take for you to break-even on the costs to refinance, and how long you would like to stay in your home. Even with so-called “no-cost” refinancing options, you should expect fees of some sort wrapped into your new loan balance or within your new rate. Try to estimate how much you will save per month on your new refinanced rate, and determine how long you will have to reap these savings for you to cover your refinancing costs and then truly save from the new terms.
How should you compare loans?
When you are comparing loans and looking for refinancing options, you should first check out the APR, annual percentage rate. This rate represents the total amount of charges for credit annually, stated as a percentage. This makes it fairly easy for you to compare loans from different lenders, but you may also want to ask each lender to provide a full list of all the fees associated with the new mortgage so you can precisely compare your options.
I hope this brief refinancing guide has been helpful. If you want to discuss this blog further, or if you are considering a real estate investment in 2012 in the Charleston, SC area, then don’t hesitate to reach out for advice and information on available properties. You can reach me via email, bob-chambers@infinityrealty.com, or by phone, 843-849-3005. The Charleston Real Estate market has some fabulous homes available right now that I’d love to walk you through. Get in touch with me today so we can take advantage of the favorable buying market! Talk to you soon!
Bob Chambers is Broker-in-Charge & Owner of Infinity Realty located in Mount Pleasant. Mr. Chambers is responsible for fostering relationships in the community, managing sales staff, heads office operations and helps clients buy and sell homes in the Tri-County area.