Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
Learn the 3 tips that will save you time and money when you refinance your home. To understand if refinancing is right for you, you’ll need to follow my three-step formula.
Step number one: Find out what the new loan will cost you
Why is this important? Well, refinancing your home at a lower interest rate should lower your monthly mortgage payment, which of course is a good thing. However, a new loan has costs or fees associated with it. There’ll be from the title company there are miscellaneous costs. And of course, there can be lender fees.
Let’s break down the basic costs of refinancing. The overall loan fees are generally less than 1% of the total cost of the loan.
So for example: If you have a loan that’s for $500,000, you’ll be charged around $3,000.
In addition to these fees, you may choose to purchase a loan that has a lower interest rate than what is presently offered.
This is referred to as buying down the interest rate. These fees can range anywhere from an average of one to two points, which equals one to 2% of the loan.
Now with this new fee on Fannie Mae and Freddie Mac conventional loans, there is an additional half percent fee on the total loan value. So going back to that new loan amount for 500,000, you’ll be charged an additional $2,500. This could be paid upfront, or it could be added to the balance of your loan, which will be paid over the term of the loan. What most homeowners elect to do with these finance fees is just add them to the balance of your loan. This of course increases what is owed on your home.
At this point, I’ve got to address the elephant in the room, which is those dreaded hidden costs.
You know, it’s the ones that we seem to find just when we’re about to sign our loan documents. There are several lenders out there that are notorious for not giving you the whole picture for what you’ll be paying in closing costs.
Therefore, it’s crucial that you get everything in writing. So there cannot be any misunderstandings. This is especially important if you are shopping or comparing different lenders. As they say, make sure you’re comparing apples to apples. Yes. Lowering your monthly payment is a good thing. However, not if it comes at a much higher cost than you anticipated.
Step number two: how long do you plan to stay in your home?
To properly assess if the refinance fees are worth it, you need to know how long you plan to stay in your home. A good loan agents should supply you with a monthly and yearly breakdown net sheet, that’ll show you how many months or years it will take. Before this new loan rate will allow you to break even against the fees, you will be charged for this new loan. So if you plan to stay in your house for approximately five years and it will take just two years to break even then refinancing will make sense. However, if you plan to sell your home in two or three years, then it may not make sense to refinance
Step number three: Know your outcome
If you plan on staying in your house indefinitely, and there’s no plans on moving and your goal’s to pay off your mortgage early, then you need to understand the outcome of refinancing and what it’s going to do to the interest of principal ratio. To best understand this. Let’s say, for example, you choose to get a 30 year fixed conventional mortgage. When you refinance your home, your interest to principal ratio resets, your monthly loan payment will stay the same. However, the majority of your payment will go to interest. As your loan matures, your monthly payment will actually go more for principal than interest. This is why you need to know when you plan to pay off your home to pay off your home early.
Some homeowners will actually make an additional principal payment each month, along with their regular payment, getting back to a good loan officer, your loan officer can create a schedule of how much extra to pay each month so you can pay off your house as planned something. I’ve always practiced over the years to accelerate my mortgage payoff is to pay one additional loan payment a year. If it’s easier, you can take that payment and divide it up into smaller monthly payments. You’ll be amazed at time how this will actually start knocking down your loan balance on your home.
And speaking of good lenders, if you have any refinance questions, please reach out to Brian Lebars at Vintage Home Loans in Pleasanton. Brian’s been in the business for over 19 years, and he’ll be able to handle just about any residential lending needs you may have.
I hope you enjoyed this article. Please let me know if you have any questions. Warren
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Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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