Refinancing Home Mortgage Loans-4 Questions You Must Ask

2008-09-19 Word Count: 467 Category: Real Estate

Question #1:Before you actually start seeking quotes on Refinancing Home Mortgage financing, you need to estimate the number of years or months you expect to pay on your new Mortgage Loan before you refinance again or sell your home?

The answer to this question will provide the first part of the equation to determine what type of loan might be best for you. The 3 basic types of financing I'm referring to are A:No Cost Closing( lender pays your 3rd party costs) B:No Cost Closing(lender adds your closing costs into the loan amount and amortizes them) and C:You pay your costs at closing.

Be aware that your interest rate will be higher on loan A, where the lender actually absorbs your closing costs.

Remember, no matter what type of refinancing you decide on, you will normally have some costs at closing. Specifically you may have "prepaids" which include accrued daily interest from the first day of the month and escrow for real estate taxes and home owners insurance.

Question #2:How much lower will your new loan payment be than the current mortgage payment?

This answer will show you how much you will save each month in pre tax dollars. We will refine this amount by answering the following question.

Question #3:What is your current income tax rate?

If you don't know, off hand, you can pull a copy of last year's tax return and calculate the percentage of your gross income that was paid to IRS. Then multiply your pretax savings on your monthly loan payment by your tax rate and you will have your after tax savings per month.

Question #4:What will your actual "out of pocket" costs be at closing? Hud estimates an average of 3 of the refinanced total. But there is such a variance of fees charged by each lender that you probably will have to compare the estimate from each one.

If, for example, your total closing costs will be $3000, you can simply divide $3000 by the after tax monthly savings amount and you will know how many months it will take you to break even on your new loan. If you expect to be paying on your new mortgage after that time then a http://www.realestaterefinanceblog.com Refinancing Home Mortgage Loan is indeed a cost saving solution for you.

The key here, as always, is for you to do your homework first and to get quotes from a number of lenders before you actually accept any offer.

P.S. Since some fees are called by different names by each lender it might be simpler for you to total up the list of figures from each
lender, excluding the prepaid interest and escrow amounts, and compare the totals.

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The author is both a former real estate broker and mortgage loan officer. For more Refinancing tips and lender sources as well as informative articles and the latest industry news, please visit www.realestaterefinanceblog.com The Real Estate Refinance Blog.