REFINANCING - BENEATH THE SURFACE
Refinancing can do a lot for you.
From lowering your mortgage and interest rate, to getting
a shorter loan term, to absolving your spouse from the
deed, to trading an ARM for a fixed rate, to protecting
yourself in case of a job layoff, refinancing can be used
as a serious strategy for long term savings.
Strategy #1 - Don't Wait to get Lower Rates
Refinancing generally becomes cost effective when current interest rates are
lower than your current mortgage rate. This strategy may lower your monthly
payments as well as the interest over the life of the loan. For example,
say you have a $300,000 30-year loan at a fixed rate of 7%. You refinance
at 6.5% which will save you approximately $100.00 a month, and about $35,000
in interest over the life of the loan.
Strategy #2 - Less is More
By reducing your loan term from 30 years to a 10, 15 or 20- year loan, not
only can you speed up the equity process, but you can lower the total interest
rates and pay more towards the principle. Robert Benson moved into his house
6 years ago with a salary of $23,000. Robert now owns his own business and
makes $60,000. By shortening his loan term, he will pay a slightly higher
mortgage, but he can afford it. He will also be able to pay off his home
loan before he retires.
Stragegy #3 - Separate When You Separate
If you are divorced, you can remove your ex-spouses name from the deed by refinancing,
because, in a refinancing, the old loan is paid off and you get a new one.
Consider Gretchen and Byron Martin, who divorced 6 months ago. Byron leaves
the house to Gretchen, who is able to afford the mortgage by herself. Now
Gretchen can refinance and change her interest rate from 7.5% to 6%. Refinancing
will also make her solely responsible for the property.
Strategy #4 - Take the Surprise out of an ARM and
get it FIXED
When interest rates run high, many owners take advantage of an Adjustable Rate
Mortgage (ARM) which tend to offer great introductory interest rates. However,
the key word is "adjust". Your interest rate could change considerably
after a specific time period. Trading in your ARM for a fixed rate is another
effective refinance strategy. Jason and Renee moved in their house 5 years
ago. They were offered a loan with a fixed interest rate of 8%. Instead, they
opted for a five-year arm of 5.59%, which was due to adjust in five years.
After their initial 5-year rate period expires, their mortgage rate, which
resets based on the one-year Treasury rate, could increase by two points a
year or more. Since they plan to stay in their house, it makes sense for them
to refinance now to get a new loan with a fixed rate of 6%.
Stragegy #5 - Don't Let A Layoff Force You to Layoff
Mortgage Payments
With such a volatile economy, layoffs and pay reductions have become common.
One of the ways you can protect your home after being laid off, is to refinance
for more than the balance and put the difference in a safe place. This strategy
is called "cashing out". Linda, who works in Human Resources for
her company, found out they were going to lay off 70 people. She wondered if
she would be one of them. With no children and no car note, Linda only worried
about her mortgage. She pays $1,538 a month on a $200,000 30 year-fixed loan
at an 8.5% interest rate. She refinanced at 7.5%, and is able to borrow an
extra $20,000 to put aside just in case she's one out of 70.
© 2003 Fannie Mae. All rights reserved.
GETTING STARTED
If you would like to begin the application process, complete
our online application
or learn more about our current rates with today's
rate sheet.
If you have questions or would like to speak with me, please
give
me a call at 888.691.0151 or drop me an email
at dave@lenderdave.com.
