Frequently Asked Questions

Q. Should I refinance now, even if I have to pay a fee?
A. Calculate how long it will take you to break even. There are typically fees associated with a mortgage refinance. To figure out if those fees make it worth it to refinance your mortgage, calculate how long it will take you to break even. For instance, if it costs you $900 in fees, and refinancing lowers your monthly mortgage payment by $70, it will take you 15 months to recover the cost of refinancing. If you’re not going to stay in the home that long, it may not make sense to refinance.

Q. How do I know how much house I can afford?
A. Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. Give us a call, and we can help you determine exactly how much you can afford.

Q. Which is better a fixed or adjustable rate?
A. Before you refinance, you should consider all your options. A fixed rate mortgage stays the same for the entire length of the loan, while the interest rate of an adjustable rate mortgage changes with the market over time. Although an adjustable rate mortgage might offer lower payments initially, if rates go up, your payment will, too. You should carefully analyze your needs before choosing a new loan product.

Q. What is a prepayment penalty?
A. Some lenders include a prepayment penalty – a fee for early pay-off – in their mortgage loan terms. Make sure you address this issue directly with your loan officer, as some lenders will charge a substantial fee for early loan payoff.

Q. I have a first and second mortgage. Should I refinance both?
A. If you’re paying high interest on a second mortgage, consider rolling it into your new mortgage when you refinance.

Q. What is PMI? Will I need to pay it?
A. If you have less than 20% equity in your home, you may be required to pay mortgage insurance (PMI). This insurance protects the lender, should they need to foreclose on your loan, and can be paid monthly, or in one lump sum. The cost of mortgage insurance is something to consider if you’re thinking about tapping into your home’s equity and increasing the amount of your new loan.
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