As most homeowners are
aware, the interest rates on home mortgages have dropped significantly over the
past few months to levels that have not been seen since early 1999. You may be missing out on significant
savings if you are continuing to pay your mortgage at a higher interest
rate. For example, if you borrowed
$150,000 to purchase your home last year using a fixed or adjustable rate
mortgage, chances are your interest rate is over 8%. Right now, you could borrow that same $150,000 at an
interest rate around 7%. By
refinancing your current mortgage, you could save over $100 per month on your
mortgage payment. This savings
would more than pay for any closing costs that go along with refinancing your mortgage.
There are two types of
refinancing that all homeowners should consider. The first kind is what is called a rate/term refinance, when
you simply “pay off” your existing mortgage balance with a new mortgage
at the lower interest rate. You
also can use a rate/term refinance to shorten the term on your existing
mortgage. For example, a 30-year
fixed rate mortgage could be refinanced using a 15-year mortgage, a change that
can often save you thousands of dollars in interest payments over the life of
the loan.
The second type of
refinance loan is the cash-out refinance, in which you, the homeowner, can
essentially add on to your existing mortgage and finance a new, larger loan
amount, receiving cash back in order to finance home improvements, consolidate
debt, save for college tuition, pay for a new car, etc. Keep in mind, however, that most
lenders will have limits on the amount of equity that you can use for this type
of loan. Besides the monthly
savings that can result from a cash-out refinance, the biggest advantage can
often be the tax-deductibility.
The interest that you pay on your mortgage is tax-deductible, so paying
for the examples above will often bring you a better tax benefit than dipping
into your savings or investments to make the same purchases.
Clearly, refinancing your
current mortgage can save you money, but you are probably wondering about what
costs may be involved. Most of the
closing costs (between $800 and $1,000 for a conventional loan program) are
standard for all loans, with the one difference being the cost for title
insurance, which can vary from loan to loan. Note that any loan that exceeds 80% of the current value of
your house will usually require you to pay Private Mortgage Insurance (PMI),
which will increase your monthly payment.
However, some lenders have creative financing solutions that can help
you avoid PMI.
At this point renters may be
wondering how they can take advantage of the lower interest rates. Now may be the time to start looking
for that first house before housing prices rise in the springtime. But before you go looking, there are a
few things that you should know to make your search go smoothly. First, meet with a mortgage loan
officer to get pre-qualified for a mortgage loan. By doing this, you will know what you can reasonably afford
to spend on a mortgage payment; you can then narrow your search to those homes
in your price range. Second, ask
questions and take notes!
It’s hard to remember everything about the mortgage loan process,
especially when it’s your first time purchasing a home. Ask questions about the loan programs
offered to you by each lender you visit—the notes that you take during
these meetings will help you to consider which mortgage option and which lender
is the right one for you.
As a new resident of the
Tenney-Lapham neighborhood, I have seen first-hand the tight bond that exists
in the neighborhood and its residents strong commitment to constant
improvement. As a home mortgage
consultant at Wells Fargo Home Mortgage, my goal is to form close relationships
with my customers and display a commitment to helping them achieve their
financial goals. Because of this
shared goal of helping others, I would like the Tenney-Lapham Neighborhood
Association to benefit as well.
Therefore, I will donate to the TLNA $100 for each loan processed for a
current TLNA resident. This way,
the neighborhood as a whole can reap the benefits as well. If anyone has any questions regarding refinancing
their current mortgage or is interested in purchasing a home or investment
property, please feel free to call Anthony Finarelli at Wells Fargo Home
Mortgage at any of the following numbers—Work (221-5000), Mobile
(513-6767) or Home (251-6767) any time.
Or, just stop by 1145 Sherman Avenue if you are in the neighborhood.
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Anthony Finarelli