Mortgage Refinancing (Continue...)


What to Look For

When you speak with other lenders, be sure to ask about:

• Interest rates • Points • Terms • Loan & origination fees • Annual Percentage Rate (APR ) • Locking-in rates

As you may remember from your first loan, the lowest mortgage rate may not always be the best choice for you. Rates are important, but also consider the overall cost of the loan. Look at other costs such as loan and origination fees and points. Ask what is the annual percentage rate (APR) of the loan. The APR takes into account the interest rate and fees. Ask for a good-faith estimate in writing from each lender so you can understand all of the costs and compare lenders.

Selecting a Refinancing Plan

After you decide on the refinancing plan that is best for you, you’ll need to get all the documentation that you needed for your first mortgage. You may want to look back at the Bank section to see what information you might be asked to provide. Remember, it is a good idea for an attorney to review the contract before you sign it.

Points vs. Interest Rates

When researching mortgage options, you’ll probably find that individual refinancing plans differ in rates and points. Make sure you compare interest rates using the same number of points. As a general rule of thumb, 1 point is equal to 1% of the loan amount and translates into a ¼ percent change in interest rate.
For example, a 9% loan with zero points is equal to an 8.75% interest rate with 1 point. Talk to your mortgage provider to understand the specifics in your case.

Be a Proactive Borrower : Tracking Interest Rates

Interest rates are often the motivating factor behind refinancing. If you are considering refinancing, it is a good idea to look at current interest rates.

Refinancing Costs

As you may know from your first mortgage, mortgage interest is tax deductible. Take into consideration that a lower interest rate means that there is less interest to deduct.

Points

Points paid up front for refinancing and usually have to be deducted over the life of the loan. There are certain specific instances where points may be deducted in one year. Talk to your tax advisor to find out how you should deduct the points you paid from your taxes.

Remodeling & Taxes

Some of the tax laws are different if you are remodeling. If you are refinancing to remodel, be aware that the increased value of your home after improvements may lead to an increase in your property taxes. Interest from loans for home improvements can be deductible. Talk to a tax professional to find out the specifics for your case.

Financing Your Home Improvements

If you are interested in a loan for remodeling, you may have to have a specific cost estimate prior to obtaining the loan. The process of remodeling takes time and hard work, but can greatly improve the value of your home.

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