Frequently Asked Questions About Cheap Home Refinancing

Here are some common questions about refinancing a home inexpensively.

Should I refinance if I plan to move within a couple of years?

You're better off sticking with the mortgage you have. Refinancing has its own costs associated with it, and if you're not planning to stick around very long, you will not recoup those costs.

What is the difference between rate and APR?

APR means "Annual Percentage Rate." This number is important because it tells you how much your financing will end up costing you. The APR adjusts the mortgage interest rate to include mortgage insurance, closing costs, and any points paid.

Should I refinance so I can get some money for home improvements?

As long as you keep in mind that you might not get back all of the money that you put into the improvements. But if you can get a better interest rate while you're at it, it may be worthwhile to you to go for it.

Should I refinance to pay off my car?

Given that you can deduct the interest on a home loan from your income tax, but you can't deduct a car loan's interest, this sounds like a good idea. You should keep several things in mind before you take any action on this: (1)Is there a pre-payment penalty on the car loan? (2)Will you have to pay mortgage insurance on the loan? (3)Is the car's interest rate lower than the proposed mortgage rate?

Is any time better than any other for refinancing?

Obviously, when interest rates fall, refinancing sounds like a good plan. But you need to keep in mind your plans and how they may affect whether refinancing is a good idea for you. If you plan to move within a year or two, you run the risk of not recouping the money you paid to refinance. Also, remember that mortgage interest is tax-deductible, so if you lower your interest rate, you also lower your tax deduction.

What kinds of fees will I have to pay?

Some loans are termed "No-Fee" loans, but these loans usually have a higher interest rate. However, usually, you'll be paying an application fee, origination fee (typically one percent of the loan amount), administrative fees, and title insurance costs, which can include a settlement fee, fee for title search, a title insurance premium, service and handling fees, and recording fees.

What are points?

Lenders require "points" to be paid when specific terms for mortgage financing are set out. One point equals one percent of the loan amount. So, if you refinance your home for $200,000, one point would cost you $2,000. Some people pay points to the lender at closing in order to get a lower interest rate - similar to a down payment.