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Articles
and F.A.Q.'s Talk to some
lenders to determine the available rates and the costs associated
with refinancing. These costs include appraisals, attorney's fees,
and points. Then determine what your new payment would be if you
refinanced. You can estimate how long it will take to recover the
costs of refinancing by dividing your closing costs by the difference
between your new and old The old rule of thumb used to be that you shouldn't refinance unless the new interest rate is at least two percentage points lower. However, many lenders are now offering zero point loans and low-cost refinancing. Therefore, even if your rate change is less than one percentage point, you may be able to save some money by refinancing. How many "points" must you pay to the lender to obtain the loan? In refinancing, lenders usually offer a range of interest rates at different amounts of points. A point equals one percent of the loan amount. For example, three points on a $100,000 mortgage loan would add $3,000 to the refinancing charges. Shopping for points as well as interest rates may save you money. As a rule of thumb, each point adds about one-eighth to one-quarter of one percent to the interest rate the lender is offering. Generally, the lower the interest rate on the loan, the more points the lending institution will charge. Some lenders offer refinancing with no points, but generally charge higher interest rates. To decide what combination of rate and points is best for you, balance the amount you can pay up front with the amount you can pay monthly. The less time that you keep the loan, the more expensive points become. If you plan to stay in your house for a long time, then it may be worthwhile to pay additional points to obtain a lower interest rate. Some lenders
may offer to finance the points so that you do not have to pay them
up front. This means that the points will be added to your loan
balance, and you will pay a finance charge on them. Although this
may enable you to get the financing, it also will increase the amount
of your monthly payments.
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