Jaime Charouf Blog: May 2011

Refinance your Mortgage Today! Rate & Payment Reductions...

One of the largest reasons homeowners refinance their mortgage is to receive a lower interest rate & lower every month payments. By refinancing, the borrower pays off their existing mortgage & replaces it with a new. This can often be accomplished with a no-points no-fees loan program, which fundamentally means no cost to the borrower.

In the no-points no-fees scenario, the mortgage originator/consultant makes use of rebate monies paid by the lender to pay off non-recurring closing costs for the borrower. These are one time fees such as escrow or attorney fees, title insurance, document preparation, tax service, processing and underwriting fees, etc. The borrower is still responsible for recurring fees such as interim insurance, property taxes or insurance policyowner payments.

Refinancing usually occurs when mortgage rates drop significantly, but borrowers with recently improved credit scores (from paying off credit card debt, making mortgage payments on time, reducing the balance on their credit card to a 30-50% of their available credit, etc.) are often candidates for taking advantage of today lower interest rates as well. In the event you haven't checked your credit score in some time, it's a great time to call a mortgage consultant.

You might ask, "Why should I refinance to a new 30 years loan again?"

There are different schools of thought on this subject & the mortgage consultant ought to work hand-in-hand with the borrower's financial planner to select what works best for their mutual client.

One option is to take the route of maintaining the same payment refinance & actually pay off the loan faster & economize on interest fees in the long-run. If refinancing ends in a lower every month payment, the borrower can still continue making the same payment they made in the original loan, & the additional money will be applied to the principal balance.

For example: Let's say you have 25 years remaining in your current loan, & you refinance back to a 30-year loan with a slightly lower rate of interest, leading to a payment reduction of $250 per month. (Note: This is an example. The actual amount could vary.) You could then take that additional $250 per month & apply it toward the principal on the new loan. At this rate, the loan will be paid off in 22 years & six months, which is four years & 8 months less than the original loan.

On the other hand, if the borrower's financial planner is a proponent of best-selling author & investment guru Douglas Andrew's philosophies (see Missed Fortune), he or she may recommend investing the additional money in a side-fund that could earn a better rate of return & grow to the amount of the mortgage (& beyond) in even less time. This method provides excellent liquidity, but having more direct access to this money may be tempting for some homeowners.

Regardless of the reason for the refinance, the mortgage originator/consultant will require to know what the existing loan scenario entails, review the homeowner's long-term goals, and provide a comprehensive spreadsheet that compares and contrasts the various loan programs available.

Keep in mind, refinancing to receive a lower interest payment could also lead to a lower deduction at tax time. The homeowner's mortgage consultant and financial planner ought to work hand-in-hand with their mutual client's best interest in mind.

For more information, please don't hesitate to call Jaime Charouf at EZ Funding Group, Inc.

*The creator of the above image the house with money was Salvatore Vuono*