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MORTGAGE refinance is an attractive proposition in the state of Rhode Island is you are currently servicing a fixed-rate mortgage (FRM) loan that you took at a higher interest rate than the rates now prevailing in the market. However, interest rate in itself is not enough of an indicator of the advisability of mortgage refinance. This article covers the mortgage refinance market in Rhode Island and looks at how you can ensure the best refinance deal for yourself.

 

Interest rates

 Interest rates vary. A slight increase or decrease in rates does not justify refinance of your existing mortgage because the advantage of such movements will almost certainly be neutralized by the fees and charges you have to pay upfront before formally finalizing the refinance loan. As an illustration, the following table shows interest rate movements over the short term:

 

National mortgage rates* as on 26th February, 2008

Loan Type




On 26th February, 2008

Movement

Change through the week ended 26th February 2008

30-Year Fixed

5.75%

Up

+0.04

15-Year Fixed

5.21%

Up

+0.04

3/1 ARM

5.00%

Down

-0.08

5/1 ARM

5.13%

Down

-0.07

30-Year Fixed Jumbo

6.57%

Up

+0.05

* Rates may contain points. 1 point = 1% of loan amount

 

When to opt for refinance: One should opt for refinance only if it makes economic sense to you. Since needs vary from person to person, it would be a hazardous task to define a blanket set of conditions that make mortgage refinance would make sense to all. However, for it to make sense to you, it must do one or more of the following for you:

 

  • Decrease your monthly payments with or without a prolongation of the life of your mortgage liability.
  • Reduce the duration of your mortgage liability even if it means higher monthly payments (this is applicable only if your financial condition now is better than before).
  • Give you a lump sum of cash.

 

Note that the above is not necessarily a function of low interest rates. Suppose, you have decided to sell your property within the next two years, it would make enormous sense to prolong the duration of your mortgage so that you can save on the monthly payments you are now making, with the buyer of your property two years from now deciding how to go about with mortgage.

 

Treat interest rate with caution

 

Interest rate is not the best indicator of the cost of the refinance loan. A better indicator is the annual percentage rate (APR) which adds up the interest cost with other costs you have to pay for the refinance loan – i.e., costs such as commissions, property evaluation fees, points (1 point = 1% of the loan amount, paid to lender to reduce the monthly repayments), etc. A very important point to remember is the penalty you have to pay for prepayment of your existing mortgage loan. Therefore, take into account the APR, not interest rate alone, to judge the viability of mortgage refinance for you.

 

Going about it

 

The mortgage and mortgage refinance market in Rhode Island consists of a large number of lenders and brokers, each vying with the other to grab business from you. You should therefore be careful that you don’t settle for anything less than the best for you. As the first step of the mortgage refinance process, use online calculators on websites like www.erate.com, www.bankrate.com, www.mortgageloan.com, and others. These calculators will give you a feel of what you can expect from the refinance market, depending on the data you feed into them. Once you get this rough idea, get in touch with a few lenders and brokers in the city you live in.

 

You can get contact details from the websites named in this article: www.mortgageloan, for example, provides a city by city directory of lenders / brokers in every city of Rhode Island. Just scroll to the bottom of the home page, click ‘XYX’, then the city you live in – and you will see contact details on your computer screen. In most cases, you can send e-mails to them, and they will get in touch with you. Remember the precautions described in this article as you negotiate with the lenders or brokers. Remember you don’t pay anyone anything in Rhode Island except when the refinance deal has been formally signed. You also retain the right not to accept an offer even if you had informally agreed to it earlier: you don’t have to pay for any informal acceptance of any offer.

 

Conclusion

 

Obtaining mortgage refinance in the state of Rhode Island is not a problem for people with reasonable credit profile. You have a chance even if your credit profile is poor provided your broker is enterprising enough (though applicants with low credit profile usually have to pay higher broker commission). The major precaution to be taken, however, is to be sure that mortgage refinance makes sense to you. Don’t be swayed by interest rates alone, or by glib talk of sales professionals. Do you own bit of research through online calculators; if the results show that refinance would be sensible for you, get talking with lenders / brokers. Don’t take anyone’s advice at face value: get offers from a few lenders / brokers, and settle for the best.