Interest rates are not the only thing that matter when it comes to refinancing. There are costs involved in refinancing and if someone tells you there are no closing costs, you better beware. The fact of the matter is that NO ONE does loans for free. Instead what they are doing is putting points on “the back”. This is also called yield spread premium. How it works is as follows. The broker goes to a lender or investors and states three criteria for each borrower. The criteria being…
Credit Score
Debt to income ratio
Loan to value
The Lender or investor then tells the broker that 6% (for example) is Par. (Par is with no points on the back or Yield spread premium.) The broker then sells the borrower a 6.5% rate and the lender pays the broker a Point (1%) directly for selling the higher rate. Be aware of lenders with little or no closing costs because it will cost you a lot more in the long run if you get sold a higher rate.
Paying off Credit card debt is another thing to consider when your thinking about refinancing. Deciding whether or not to roll revolving debt into a refinance is pretty easy. For instance, If you have a credit card that has a $2000 dollar balance and you have enough disposable income to pay it off in six months to a year, then you might not want to spread that out over a 30 year loan. If you are making only the minimum payments on your credit cards, then you definitely want to roll that debt into your new mortgage. Paying the monthly minimums will take forever anyway so you might as well be paying six to eight percent interest rate on that debt rather than ten to twenty percent.
The was an old rule that said interest rates should drop 2 points before it would call for you to refinance your home loan. But that rule does not always apply. sometimes as little as a point might save you a ton of money. Assuming your want to and will plan to stay in your house five to seven years longer. If you have a home loan of $150,000 at a rate of 8.5%, a new mortgage with a rate of 8% could save around and roughly $50 a month. That's $60 a year and $2500 over the next five to seven years. If you invested some of that money every week into a savings account or a CD your savings might be greater. Before you refinance your home in Portland you should talk with a local Portland mortgage broker or consultant and be sure to shop around. The more you shop the better savings you will find. Especially in this market where local Portland lenders are competing for your business. The brokers are starving and that means cutting there commissions to get the deal. Use this volatile market to your advantage and be sure to always get a second opinion on your home loan.
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