Lake Murray Life

The Pros and Cons of Refinancing

Let’s face it, if you’re not careful refinancing your current mortgage can be an expensive transaction. While refinancing your mortgage can be used to put yourself and your family in a much better financial position, you need to consider a few things in order to maximize your savings.Although it may seem like it, refinancing is not free. Here are five questions you need to ask yourself before you refinance your home:

Why are you refinancing?

In order to realize a benefit when refinancing your home, you need to be clear on what you expect to get out of it. Whether it’s paying off debt, converting your adjustable rate to a fixed rate, or shortening the term of your loan, the point of refinancing is to “benefit” (putting yourself in a better financial position or accomplishing a long term financial goal.). Keep in mind that refinancing to get away from your current lender is not—and never will be—a compelling reason to refinance.

What will you do with the “extra money” each month?

Paying off credit cards and other high interest debt is a smart move. When you do this, your monthly expenses will go down and you will have “extra money.” The problem with “extra money” is that many of us are tempted to spend it instead of save it and quickly wind up with the same level of debt we refinanced. Before you refinance and pay off those debts, create a plan for the extra cash you will have each month. This will prevent you from accumulating new debt on top of the old debt you just refinanced into your mortgage.

How long do you plan to live in your current home?

If you plan to continue living in your home for at least 3-5 years, refinancing is going to make sense. Less than 3 to 5 years and you need to weigh the costs of the refinance versus the savings.

How will you pay for the cost of refinancing?

In most cases, lenders will roll the costs of a refinance into your new loan. This practice is customary throughout the industry. However, the costs of refinancing including points and fees will chip away at your equity. If the costs you are rolling into your new loan exceed the breakeven point for the length of time you plan to stay in your home, then refinancing is going to cost you more than it saves you.

What is your broker getting out of this?

Be careful! Some mortgage companies encourage loan officers to “load up” the loan. This means they are encouraged to charge as much as possible in fees to max out the loan. When loan officers and lenders do this they are sometimes charging thousands of dollars more than the actual cost of the loan. They do this because it enables them to make more money which reduces the equity you have in your home and decreases the amount of money you would have saved.As a general rule, for every thousand dollars financed in fees adds an extra $7.00 per month to your house payment. Seven dollars a month may not sound like much but $5000 in fees can wind up costing you $37,070 over 30 years. While refinancing your home can be a very timely and wise financial move, you really need to have a plan for that “extra money,” understand the debt you are about to create and make sure you are not being overcharged for services that are not being provided. Better yet, just call me I will be happy to walk you through the process personally.

Comments (1)

Six steps to raising your Credit Score

Just as you should maintain your health through periodic visits to your physician, you should adopt a similar strategy for your financial health, which in many cases is influenced by your FICO score, a three-digit credit rating used to determine the likelihood you will pay back a loan. Credit scores range from 350 (poor) to 850 (excellent). Here are six steps to raise your FICO score:

• Pay bills on time! Your payment history makes up 35% of your FICO score.

• Don’t consolidate and then close out your old, revolving debt accounts. The age of your credit accounts is an important, positive factor for a good credit score.

• Don’t load up a credit card’s debt close to its limit. This weighs negatively on your credit score.

• Pay down high-balances; don’t shuffle debts among several lenders. Keep no more than a balance of 30% of your limit.

• Settle any collections or past-due accounts.

• Dispute and resolve any inaccurate items in your credit report. Time may be your only remedy for mitigating the damage from bankruptcies, foreclosures and other judgments. The last two years of your credit history are the most important.

• Do your credit shopping (mortgage or automobile) over the same 45-day period so that numerous credit applications show up as one inquiry on your credit report. This minimizes the impact to your credit score.

For more information, view “The Credit DVD” , which offers an in-depth look at credit scores.

Comments (1)

Am I Pre-Approved or Pre-Qualified?

I have been a loan originator in the mortgage industry for several years now and one of the most FAQ’s I get is: “What is the difference between pre-qualification and pre-approval?” The two terms are often used interchangeably but actually have different meanings.

A pre-qualification is an estimate of how much home you can afford based on your monthly income and expenses. In most cases, you give this information to a mortgage lender over the phone. This is the first step to completing a loan application, but does not mean you are approved for a mortgage. The terminology is definitely a little tricky.

In order get a pre-approval, the lender pulls a copy of your credit report and verifies the information you have given them. Typically a lender will call your employer to verify your employment, request a copy of your W-2 and pay stubs (or tax returns if you are self-employed) to verify income, and a copy of your bank statement to verify assets.

It is important to get a pre-approval before you begin the hunt for your dream home for two reasons:

1. It gives you peace of mind knowing you can afford the home you are in love with, and
   
2. It ensures the seller that you are qualified to by their home, which will give you more bargaining power when negotiating the sales price.

Janet Wickell posted this article which goes into more detail on the topic. Good luck and happy home hunting.

Comments(0)

Rates Hit Highs

Market Watch posted this article laying out all of the numbers for you about the 10-month high rates.  There is one quote in the article that bodes well for homeowners:  “As house prices grow less quickly and household incomes rise, the housing market will likely recover from its current slump, but perhaps not before the end of this year.” 

The article found here describes that Consumer Confidence is at a 10-month low.  It’s certainly no coincidence that consumer confidence hits at a 10-month low when rates hit a 10-month high.  You may now be thinking, “What does all of this mean?”  Well, I’ll defer to a post by Brad Inman for an explanation.  He essentially says that low consumer confidence is a good thing because it slows real estate speculation and makes home buyers examine the numbers much closer.  Therefore, people are more likely to buy homes that they can afford for the long-term.

Comments(0)

Friday’s Rates by Rhonda

I am a Realtor, not a mortgage expert. So, in an effort to keep you informed about what’s going on in the world of real estate, I have found a mortgage expert who does a weekly rate update. Her name is Rhonda Porter and she posts regularly on Rain City Guide, one of the real estate blogs I read regularly. Here you will find her latest post. I totally agree with her advice…”lock in your rate if you’re within 45 days of closing.” Rates are changing constantly and lately they’re not going down.

I’d love to have a local mortgage expert to post on this site regularly.  If you think you fit the bill, please contact me.

Comments(0)

Powered by Wordpress. Theme by Graeme Pietersz of Investment Ideas & Moneyterms