Is NOW really the best time to refinance?

 

 

We are bombarded several times a day with messages on the radio, television and via email that right now is the best time to refinance your home. Can it really be the best time every day, all the time, year after year?

 

Don’t be fooled by mortgage companies advertising “NO COST” refinancing. It does not exist. In fact, when you refinance, you pay closing costs related to selling AND buying because you are the buyer AND the seller. You are, in fact, selling the home to yourself. Closing costs are incurred 100% of the time. There are several different ways of hiding closing costs. The most common way that the public does not understand and that mortgage companies are good at is called “Backend Loading”.

 

“Backend Loading” can be accomplished a number of ways including; a slightly higher than market interest rate and fees added to your loan (the more you borrow, the more profit for the mortgage company).

 

“Front End” loading occurs when you pay expenses in advance of or at the time of refinance. This is better for you but does not sound as good as “no cost” when advertising for customers. It’s still bad business most of the time.

 

In a recent survey, 78% of everyone who refinanced in the past 4 years had no idea how much they were charged to refinance and a whopping 86% lost money as an end result of refinancing. 63% thought there were no charges to refinance and 74% said they were not aware that expenses were added back to their loan, when in fact, they were.

 

Refinance Appraisals will ALWAYS come in at 10-20% ABOVE market value. WHY?? Once again the more you borrow, the more profit for the mortgage company. AND, they already know because they have checked your credit, that you have good credit so they want to lend you as much money as possible. Refinance appraisals are worthless to anyone but the lender.

 

Refinancing is usually not a good idea unless you plan to live in your home for at least 48 months after the refinance because that is about how long it usually takes to pay off the expenses of refinancing and start saving money when compared to your old loan.

 

Another steadfast rule that has been bent by the lenders is that your new rate should be at least 2% BELOW your existing rate in order make refinancing sensible. Nothing less.

 

Don’t fall for the sales pitch from anyone that now is the time to refinance.

 

ALWAYS explore the long term effects before you refinance and learn how much the “no cost” refinance is really going to cost. Dale. Ross