WHAT CLIENTS ASK THE MOST

WHEN SHOULD I REFINANCE?

This is different for every individual situation. One of the best reasons to refinance is to lower the interest rate on your existing loan.

Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% or less is enough of an incentive to refinance.  Even with that, it pays to do the math, and also consider other factors.  If you can refinance with no closing costs and save .50% on your rate, that also makes sense. You may want some cash-out for home improvement, debt consolidation, or any other purpose. Other reasons might be to remove mortgage insurance or get a better interest rate if your house has increased in value.  

All these factors should be considered and evaluated when making a decision, and I will help guide you.

WHAT ARE POINTS?

Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments.

One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000). Essentially, you pay some interest up front in exchange for a lower interest rate over the life of your loan.

In general, the longer you plan to own the home, the more points help you save on interest over the life of the loan. When you consider whether points are right for you, it helps to run the numbers. This is something I will help you with. 

It’s important to consider how long it takes to recoup the cost of buying points. This is called the break-even period. To figure it out, divide the cost of the points by how much you save on your monthly payment. The resulting number is how long it takes for the monthly payment savings to equal the cost of the points.  

SHOULD I PAY POINTS TO LOWER MY INTEREST RATE?

This is different for every individual situation, and there is no right or wrong answer. It comes down to the math. 

How much payment savings will you get vs. how much extra cost you would pay via points. Then we calculate how long the “break even” period would be. For example, if you save $100/mo. but have to pay $10,000 in points, that breakeven period is 100 months, or just over 8 years. If you can save $200/mo. by paying $10,000 in points, that breakeven period is cut to about 4 years.

In general, the shorter the break-even period, the more it makes sense to consider paying points. 

WHAT DOES IT MEAN TO LOCK THE INTEREST RATE?

Mortgage rates can change from day to day, and sometimes even during the course of a business day. When you lock an interest rate, it guarantees you that interest rate and protects you from interest rate increases while your loan in in process. Typical rate lock periods are 30 – 60 days. The decision to lock in a rate is a vital part of the process. I will advise and provide options based on your individual situation.

HOW IS MY CREDIT JUDGED BY LENDERS?

Credit scoring is a system creditors use to help determine whether to give you credit. The total number of points - your credit score - helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due. Credit score is also an important factor when determining what interest rate you will receive.  The higher the credit score, the better the interest rate. 

Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt.

WHAT IS AN APR?

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other closing costs. The APR was created to allow homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan."

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.

Because APR calculations are affected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask for  a good-faith estimate of costs for the same type of program (for example, 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.