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Should I refinance? |
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When interest rates fall, a
homeowner should certainly explore the possible benefits of refinancing;
however, you should discuss your financial situation and goals
with your lender before making a final decision. Are you looking
to lower your monthly payment? Consolidate debts? Get cash out
for a large purchase? Change your interest deduction expense for
your taxes? Ask your lender to provide you with a few refinancing
scenarios that outline how your loan's term, monthly payment,
and total interest expense will change. After reviewing these
scenarios, you'll have a more clear picture as to whether or not
the cost to refinance is worth it for you. |
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Is there a best time
to refinance? |
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The old rule of thumb is that
a person should refinance when mortgage rates drop 2% or more
below their current interest rate. However, refinancing may be
a viable option even if the difference is less. A modest reduction
in the loan rate can still trim your monthly payment. For example,
the monthly payment on a $100,000 loan at 8.5% is about $770 (excluding
taxes and insurance). If the rate were lowered to 7.5%, the monthly
payment would be about $700, or a savings of $70. Again, the significance
of such savings is dependent upon your overall financial picture,
how long you plan to stay in the home, etc. |
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Should I refinance if
I plan to move soon? |
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This is an important factor
to consider. Most lenders charge fees to refinance a loan. If
you plan to stay in your home for less than a few years, there
may not be enough time for your monthly savings to outweigh your
upfront costs. For example, let's say your refinance transaction
lowered your monthly payment by $50 and the lender charged you
$1,000. It will take 20 months ($1,000 divided by $50) for you
to recoup the upfront cost before you will begin realizing your
savings. Some lenders offer "no cost" loans which come
with a slightly higher interest rate but no other costs. The attractiveness
of these loans depends on the interest rate you are being charged
on your current loan. |
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Is there anything I need
to consider before refinancing? |
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One factor people don't always
consider is that saving mortgage interest dollars might not always
be the best choice for everyone. You have to take a good look
at your own "financial personality" here. Remember that
mortgage interest is tax deductible. When you reduce your monthly
payment, you reduce your tax deduction as well. Are you disciplined
enough to invest your newfound monthly savings in such a way that
your lessened tax benefit won't be a problem? |
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What types of claims
or risks covered by title insurance? |
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This depends
but, in general, costs might include a lender application fee,
an origination fee (typically 1% of the loan amount), administrative
fees, title insurance company costs (settlement fee, title search,
title insurance premium, handling/service fees, recording fees
paid to the Clerk of the Court). Your new lender will disclose
their fees to you on a Good Faith Estimate, which is usually done
at the time of application or soon after.
The sum of all charges could amount to 2-3%
of the loan amount. If you don't have the available cash to cover
the associated loan costs, you might want to look for lenders
offering "no-cost" loans. There will be a slightly higher
interest rate associated with such a loan, so discuss the pros
and cons with your lender.
In addition, if you have a prior First American
Owner's Policy which is less than five years old, you qualify
for a 40% discount on the title insurance. You will need to provide
us with a copy of the policy.
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What are points? |
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Points are costs that need to
be paid to a lender in order to receive mortgage financing under
specified terms. One point is equal to one percent of the loan
amount. In other words, one point on a $100,000 loan would be
$1,000. Discount points are fees that are used to lower the interest
rate on a mortgage loan. Some people may choose to pay one or
more points to the lender upfront in exchange for a lower interest
rate. The choice is personal and dependent upon one's financial
situation, how long one plans to be in the home, etc. |
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Do I need an attorney? |
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No. In this area (DC/Maryland/Virginia),
you are not required to have a closing conducted by an attorney.
A title company can usually assist you adequately in most real
estate transactions. |
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When should I contact the title company to arrange
my closing? |
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Contact them as soon as you
are reasonably sure of loan approval and agreement of terms with
your lender. You should inform your lender at the time of application
(or shortly thereafter) who you have chosen to conduct your closing.
You may be required to place a nonrefundable deposit with the
title company to cover expenses, which will be applied to costs
at the time of closing. It is advisable to contact the title company
at least two weeks prior to closing. |
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What will the title company need from me? |
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- Information about your property
(address, etc.)
- Name, phone number, and account numbers for all open mortgages
- Social Security Numbers for all owners
- Name and phone number for the new lender
- Copy of prior First American Owner's Policy, if less than five
years old |
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Why do I need to have another title search done? |
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Each lender requires that a Commitment
to Insure be issued in their favor prior to closing. The information
in that Commitment can only be obtained from a review and evaluation
of documents in the local land records. Therefore, the title company
must research these records for each transaction. This gives them
and the lender a proper picture of all existing liens and encumbrances
as well as accurate ownership and real estate tax and assessment
information. |
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I already have title insurance. Why do I have to
buy it again? |
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When you purchased your home, you
probably paid for Owner's and Lender's Title Insurance Policies.
Your Owner's Policy will remain in force and effect; however, when
the existing loan is paid off at the time of refinancing, a new
Lender's Policy must be issued. |
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What will happen at the closing? |
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Normally, you will come to the title
company's office to sign all of the new loan papers. You will have
to show proper identification since many of these are legal documents
which require a Notary Public's acknowledgment. The lender will
have prepared and delivered to the title company all of the paperwork
pertaining to your new loan. You will sign many of the same documents
and forms that you signed when you originally purchased your home.
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