Finance Choices
Beware The Hidden Costs of Refinancing
With so many homeowners refinancing their mortgages it is tempting to jump on the bandwagon, especially with the current low interest rates and appealing offers that are popping up all over the place. While in many situations refinancing can be a wise choice, it is important to note that it is not without its own costs.
Some refinance companies charge an application fee to begin the application and refinance process. This is an upfront cost that is never rolled into the new loan amount and must come out of your personal funds. There are lenders who do not charge application fees, and some of the lenders who do often run promotions where the application fee is waived.
You might remember when you bought your home and took out your mortgage, there were costs and fees involved that you had to pay. When you refinance, those same fees and costs must be paid all over again, though they can sometimes be rolled into the new mortgage. If you don?t think that you are paying for things like settlement costs and points, think again.
Even if you don?t have to bring cash to closing, the lender has probably added these costs into the term of your loan. Be sure to check and see exactly how much they are charging you and how much money for these expenses is being rolled into your new mortgage balance. To have a lower monthly payment, you are going to wind up paying more points. To pay lower points you are going to need to make a higher monthly payment.
Another possible cost that you have to be aware of when you are considering refinancing is whether or not you have an early payoff penalty on your current mortgage. Sometimes these fees can be steep, making it pointless to refinance if the fees exceed the amount you will be saving by refinancing in the first place.
While there are costs involved with refinancing, in the majority of cases, it still pays off in the long run. Refinancing can save a homeowner tens of thousands of dollars - a rather large sum compared to the amount spent on refinancing.
Some refinance companies charge an application fee to begin the application and refinance process. This is an upfront cost that is never rolled into the new loan amount and must come out of your personal funds. There are lenders who do not charge application fees, and some of the lenders who do often run promotions where the application fee is waived.
You might remember when you bought your home and took out your mortgage, there were costs and fees involved that you had to pay. When you refinance, those same fees and costs must be paid all over again, though they can sometimes be rolled into the new mortgage. If you don?t think that you are paying for things like settlement costs and points, think again.
Even if you don?t have to bring cash to closing, the lender has probably added these costs into the term of your loan. Be sure to check and see exactly how much they are charging you and how much money for these expenses is being rolled into your new mortgage balance. To have a lower monthly payment, you are going to wind up paying more points. To pay lower points you are going to need to make a higher monthly payment.
Another possible cost that you have to be aware of when you are considering refinancing is whether or not you have an early payoff penalty on your current mortgage. Sometimes these fees can be steep, making it pointless to refinance if the fees exceed the amount you will be saving by refinancing in the first place.
While there are costs involved with refinancing, in the majority of cases, it still pays off in the long run. Refinancing can save a homeowner tens of thousands of dollars - a rather large sum compared to the amount spent on refinancing.
posted by Bruce Wayne at 8:24 AM
Beware The Hidden Costs of Refinancing
5 Comments:
Great article Bruce, thanks.
It it a good idea to refinance my home and pay off the chap 13. I've been contacted by a company that specializes in refinancing for bankrupcy folks.
There isn't one right answer for everyone. It's a personal decision based on how much debt you have, the percentage of you plan, etc. Usually though, if you can live with the payments, you're better off completing the plan in most chapter 13 plans you're paying no interest on unsecured debts.
Hi,
I am married with one child - my wife doesn't work. We have over 60k in credit card/home equity debt. Sending my wife back to work isn't a real possibility and I can't find a 2nd job that would be flexible enough to allow for the extra time I am sometimes required to put in at my current job. I also can't seem to find something that she can do out of the house.
Half of the debt is on low-fixed-interest credit cards - nothing over 11%, some under 3%. The other half is on a home equity loan at prime interest - currently 7%. The problem is the amount of payments we have to make each month is making it hard to get ahead.
I have stock grants I could exercise - $25k after taxes if I sold every share. Our house has appreciated, of course, so there's about $125k between our current mortgage and the estimated selling price.
What would be my best option here - sell stock or roll the debt into a refinancing of the mortgage (currently at 6% I think)? Should I try and pay off even those cards with less than 3% fixed-for-life interest? I'm afraid that if I don't consolidate all of them, my budget will still spend more than I make - thereby increasing my debt... I should mention we have NO savings whatsoever - I stopped contributing to my 401k when the debt began...
Any thoughts or advice on this?
Thanks!
I think you should sell your stock options ASAP. That's almost 50% of your debt wiped clean, no questions asked. Don't feel too bad if the stock goes up after you sell it. At this point it's about surviving, not speculating.
You priority should be to repay the home equity loan since it is secured on your property. You have a bit more flexibility with credit cards, so although these are important and you should keep up the repayments, they are less of a priority than to have a roof over your family's head.
Hope this helps.
Good luck
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