Ask Yourself The Basics

According to Larry, if you are thinking about refinancing, there are a few basic questions you need to start with…

Is Time On Your Side?

How much time is left on your current mortgage?  If you have a long time left, then refinancing may make economic sense for you because you will have many years to realize the savings.  However, if you have had your mortgage for a long time, it is generally not a good idea that you restart the amortization process causing you to again pay off mainly interest instead of later payments that tend to pay off more of the principal balance – thus building you more equity.

Costs?

Yes – it costs you money to refinance! You didn’t think mortgage brokers were doing it just to be nice, did you?  So, what is the cost of refinancing? According to Larry, the costs are broken down into 3 main elements:

• Appraisal fees
• Bank fees
• Title fees

Typically, even for entry level houses, condos & co-ops these costs add up to around $2000-$2500 dollars – or more.  Depending on a number of factors, you may be able to roll these expenses into your new mortgage with only having to pay the appraisal fee upfront.  However, even if you don’t have to pay these costs up front, it is important to run the numbers so you can make sure that you will have positive cash savings each month.  –Keep in mind- you will need a good mortgage broker to work this all out for you unless your current bank is offering a great deal and they are willing to work with you directly .

Show Me The Money?

Ok, so what is the monthly savings?  It’s not as simple as just equating a lower interest rate with lower monthly payments, due to the time left on your current mortgage and costs mentioned above.  You must take all these factors into account when determining what your real cost savings will be.  A broker can help you with this or you can use a refinancing calculator to get an idea yourself.

Know Who You’re Dealing With

If you are not dealing with the bank that has your current mortgage, make sure you find a reputable broker! You may want to be wary in this low rate environment of using a mortgage broker who relies on a lead generating service such as advertising on a website to generate clients.  Many of the most reputable brokers (like Larry) do zero advertising and get all their business by word of mouth. As with most things, a personal referral is a great place to start.  You can also check out the  OBR - the State Office of Banks and Real Estate to check and see if any disciplinary action has been taken against the broker who you are considering using.

Patience is a Virtue

Larry cautions that what starts with paperwork needs to be followed up by patience!  Once you get the mounds of paperwork  required taken care of, your refi will still take an average of 6-8 weeks to finalize.  But, if you’ve done your homework, you know the cost savings will be well worth the wait!

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Larry Steinway is a senior mortgage banker at PHH Home Loans in Chicago.  If you live in the Chicagoland area and want to contact Larry to discuss your mortgage needs, you can reach him at 312-884-7373 or at larry.steinway@phhonline.com. Many thanks to Larry for his time, information and help!

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