Love thy Home, but not the rate of interest you are currently paying: Avenues to explore before deciding to refinance your current loan?
You need to further investigate what refinancing can do to your loan. Your credit history, Job stability, and regularity with which you have been making your loan payments help you qualify for a lower interest rate. However note carefully that if the car or home that you have bought has since suffered a lot of damage, it might negatively affect the interest rate you get on any subsequent.
Your relationship with the lender may help you modify the rate of interest on your current loan after a certain period of time. Explore the option of having your current lender reduce the rate of interest, which will help you capture any interest savings without refinancing. You'll potentially save time and money.
If your current lender is unwilling to reduce your current rate of interest, you need to start on the path to refinancing your loan.
Checklist of questions to ask before refinancing you loan
1. Will I be required to pay a penalty for paying my original loan early? This fee is sometimes referred to as a pre-closure fee and varies from lender to lender
2. Refinancing is the sum total of the settlement cost, interest rate, and associated cost with obtaining a loan. Add up these figures to come up with a comprehensive rate that you will end up paying to refinance your loan.
3. Shop around with different lenders to check about the available rates and the associated refinancing costs (pre-closure fees, lawyer fees, points you may be penalized).
4. Estimate how long it will take to recover the costs of refinancing by dividing your closing costs by the difference between your new and old payments (your monthly savings).
5. The less time that you keep the loan, the more expensive points become. If staying in your home for a long time, it may be worthwhile to pay additional points to obtain a lower interest rate.
6. With a lower interest, you will have less to deduct on your income tax return. That may increase your tax payments and decrease the total savings you might obtain from a new, lower-interest mortgage.
Tips to refinance your loan
1. Beware of the rule of the 78s. With a loan that uses this rule
the lender typically collects three-fourths of a loan's interest
in the first half of the loan term. The earlier you try to pay
off one of these loans, the more you'll have to pay. The higher
the interest rate, the more that payoff amount is going to hurt.
Check the front of a loan contract to see whether it allows a
refund or rebate of interest. That's a sure sign you've signed
on for a pre-computed loan. The good news is that most auto loans
today don't use this rule.
2. The ultimate amount you may save depends on many factors, including
your total refinancing costs, whether you sell your home in the
near future, and the effects of refinancing on your taxes.
3. Some lenders require you to pay a special non-refundable charge
($100-$200) to cover the costs of processing your application,
when you apply for a mortgage. Try to shop around to find lenders
who will waive off your non-refundable charge.
