877-RAPID-20
Know
your options and the process
We want to help you get the loan that is right for you. That is why we have provided
a wealth of information to help you make educated choices.
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If you need assistance or have further questions, please
call 877-727-4320
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When
is
it
Best
to
Refinance? |
| Lenders
cover their risk and make
profit in two ways through
the loan's interest rate
and upfront fees called "points." When
it comes to refinancing,
the decision is based
on how much money you
will save by paying now
or later. Typically, this
has to do with how long
you plan to have the
loan. Here's a simple
example:
Example
Situation:
There
is an existing
loan balance
of $300,000 at
6%. A Lender
offers 5.5% with
2 points—or a
5.75% rate with
no points. Which
option is better?
How do you evaluate
both?
Evaluation
- A
point is
equal to
1% of the
loan amount.
So the lower
5.5% rate
will save
you almost
$1,150 per
year, but
cost you
$6,000 in
up front
points.
- Refinancing
at 5.75%
only saves
$575 annually,
but you are
immediately
ahead the
$6,000 you
didn't pay
in points.
- In
this example,
if you're
planning
on staying
in the house
for five
or more years,
the lower
rate with
points will
put you ahead.
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Note:
If you replace a loan with
25 years remaining with
a new 30-year mortgage,
there will be an extra
five years of payments.
So you may want to ask
your lender for a loan
term that matches the remaining
life of the original mortgage.
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Copyright © 2008 Pan American Mortgage |