Home Buying Questions and Answers

Q: Should I refinance?

A: It depends on your current financial situation and plan. When making a decision of whether refinancing is the right move, you may want to consider the following questions:
•    How much equity do I currently have in my home?
•    How long will I be residing in this home?
•    Am I willing to pay points to get a better interest rate?
•    Will the future lower payments make up for the possible closing fees and points?

Q: Should I pay points to get a lower interest rate?

A: Depending on your situation, paying points may be a better option. If you are buying a home, points paid are considered a tax-deductible expense. Points paid on a loan refinanced are deducted in small increments – for example: 1/30th a year for a 30-year mortgage. Therefore, it could be several years before your lower interest rate makes up for the points you pay.

Please consult your tax advisor for information specific to your situation.

Q: When should I move forward and lock an interest rate?

A: It is difficult for anyone to predict interest rates. Traditionally, rates climb quicker than they drop. Therefore, if you are thinking of refinancing or buying a home, first lock your rate. You can always choose to refinance later if rates drop.

Q: Is there really such a thing as a loan with no closing costs?

A: It is true. There are loans in which the lender will agree not to charge application fees and pay for title and appraisal costs. However, the no closing costs loans will usually come at the expense of a higher interest rate. Another option is that the lender will roll the closing costs into the loan amount. However, because the costs are not paid up front, the loan is considered a “no closing costs” loan.

Q: Should I refinance from an adjustable rate to a fixed rate?

A: Generally, it is a good idea to obtain the lowest fixed rate possible. However, if you are planning to move in the next 3 years and you are still in the first year of your Adjustable Rate Mortgage (ARM), then refinancing may not be the best option for you. If you do not plan on moving in the next 7 years, then refinancing to a fixed rate can be a good option.

Q: How long does refinancing take?

A: Generally, refinancing is a 30 day process. This time period can become shorter or longer depending on several factors. Here are some questions to ask yourself when determining a likely time frame:
•    Do I have all of my paperwork completed and ready?
•    How long will it be until I decide to move forward and lock an interest rate?
•    Do I have a recent home appraisal?

Q: Will a mortgage broker be able to find me a better rate than a mortgage lender?

A: Mortgage brokers work with many lenders including commercial banks, thrifts, and mortgage bankers. Brokers may also have access to lenders who do not have an office located in your state, but are licensed to lend money there. They can customize a loan to fit your specific needs.

Q: But the mortgage broker has to be paid. Doesn't this mean I automatically pay more for this loan?

A: No, this does not necessarily mean you pay more for the loan. The broker is processing the paperwork so it costs less for the lender to make the loan. In return, the lender discounts the loan to the broker. For example; a borrower who finds a loan on their own may pay 7.5 percent with two points (One point is equal to 1 percent of the loan amount), but the broker receives the loan for 7.5 percent with one point. True, the broker then adds a fee to the loan. However, if it is one point, using the above example, the borrower has benefited from the broker's service with the discount covering the fee. By state law, both the broker's fee and the discount the broker receives from the lender must be disclosed up front to the borrower.

Q: Should I forget the type of mortgage provider and focus instead on who advertises the lowest rate?

A: You can, but you have to remember that there is no guarantee you will get the rate advertised. This rate may only be a temporary sale and expire by the time of closing, which could be 30 to 60 days later. To get a loan with what is called a longer lock in period, you usually have to pay a higher rate. In addition, interest rates can change daily. The better way to compare lenders is to ask what the rate would be if you closed within 90 days (or whatever your timeframe is). Also, get everything in writing.

Q: What documents do I have to provide?

A: Be prepared to provide verification of income (including a pay stub and tax returns for the previous two years), bank account numbers and details of your long-term debt (credit cards, auto loans, child support, etc.). If you are self employed you may also be required to provide financial statements for your business. Lenders will be interested in specific information.  For example, the origin of your down payment.

Q: Does it make sense to prepay my mortgage or should I use the money to invest elsewhere?

A: It depends on the cost of the mortgage, your appetite for risk and your age. Prepaying shortens the term of the loan which allows you to save thousands of dollars of interest. "As a general rule, on a 30 year mortgage, you save $3 for every $1 prepaid. On an after-tax basis, you get back $2 for ever $1 you prepay." It is an easy, risk-free investment. Just round your monthly payment up: if you pay $883.50, write the check for $900. If your mortgage costs 8 percent a year, that's what you'll earn on your prepayment. Compare that return with what you would earn in other comparably safe investments, like a CD or paying off credit cards (if you pay 18 percent on credit cards don't even think about prepaying a 8 percent mortgage instead). Notify your lender if your personal or financial status changes between the time you submit an application and the time it is funded. If you change jobs, get an increase or decrease in salary, incur additional debt, or change your marital status, you must let the lender know.

Still have questions? Contact Peak Finance Company and our professionals will get back to you.