|
Mortgage refinancing 101
|
 |
January 8, 1998: 5:50 a.m. ET
As interest rates drop, homeowners can save money by refinancing
|
NEW YORK (CNNfn) -- Deryl and Donna Reid thought about refinancing their mortgage a year ago, but it wasn't until the impending birth of their baby girl in November that the Florida couple decided to take the plunge.
"That was our motivation, because we knew we were going to be without a paycheck for six weeks," said Donna.
In October, the Reids refinanced their $84,000 home, snagging a mortgage with a 7.32 percent annual interest rate, compared to their original 11.78 percent rate.
Refinancing slashed the couple's monthly mortgage payment in half -- to $480 plus insurance and taxes from a previous $1,092.
The lower monthly payments helped Donna stay home on maternity leave, while also allowing the couple to pay off the balance on their car loan.
Refinancing -- arranging for a new mortgage at a lower rate for a different term -- isn't cost-free.
Sometimes, banks charge up-front fees and closing costs, even if a homeowner's original mortgage is only a few years old.
But refinancing a mortgage can often help you:
- lower a mortgage's interest rate, reducing your monthly payment and often cutting the mortgage's overall cost;
- consolidate outstanding debt by combining a first and second mortgage into one;
- reduce the term of the loan. This might increase your monthly payment, but will probably significantly reduce a loan's total cost.
A good rule of thumb is if mortgage rates drop by 2 percentage points or more, it's a good time to refinance.
But questions to ask before deciding to refinance include:
- How much lower will my monthly payments be?
- What refinancing costs must I pay?
- How long do I plan to stay in my current house?
- How many years remain on my current mortgage?
Not everyone qualifies for refinancing.
When property values fell in many U.S. locales during the late 1980s and early 1990s, some people who bought residences with only 10 percent down found they had no real equity in their homes.
To refinance their mortgages at lower rates, such homeowners actually to make new down payments on houses they already lived in.
But no such problems affected the Reids, who were amazed at the how little time their new mortgage took to finalize.
From filling out their application to closing the deal, the whole process took about three weeks.
"This mortgage went through quickly and efficiently," Donna said. "I was impressed."
-- by Bank Rate Monitor reporter Michelle Samaad for CNNfn Interactive
(Bank Rate Monitor is a leading source for banking rates and industry news. Readers with banking-related questions can e-mail Bank Rate Monitor here. BRM staffers will address questions of general interest in future columns, but regret that the volume of mail prohibits them from answering all e-mails received.)
|
|
|
|
|
|
Bank Rate Monitor
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
