LOW interest rates in Idaho, such as the ones prevailing at the time of writing this article (late March 2008), are a strong attraction for mortgagers (i.e., people who own a mortgaged home) to opt for refinance. During times of low interest, refinance not only reduces monthly payments but also provides some cash in a lump sum, especially if the market price of your property has gone up since you purchased it. While this is largely true in principle, it may not be true at the practical stage.
Commercial Mortgage Loan
Refinance in Idaho, as well as elsewhere in the United States, involves several technicalities that an average citizen cannot be expected to be aware of. That's where the large number of mortgage lenders and brokers in Idaho has their role to play: advising and guiding people to take the correct decision vis-à-vis mortgage refinance. Nevertheless, it makes enormous sense for people to first familiarize themselves with certain basic technicalities of mortgage refinance and use this knowledge as the basis of negotiations with market professionals. This article attempts to do just that.
Interest rates not enough
First of all, a myth should be sent packing. It is not true that low interest rates alone are sufficient reason to go for refinance. Many people in Idaho have discovered this to their dismay after spending a lot of time with brokers. The problem is that some brokers assume that since you have already taken a mortgage loan before (that's how you have a mortgaged house), you must be familiar with the terms of the original mortgage loan. There is sense in this broker-logic -- but, in life, we often forget a few basics and then wonder how on earth we forgot them!
The basic which many forget is that taking a mortgage refinance means prematurely terminating your existing mortgage loan, which calls for a penalty. Read the terms and conditions of your mortgage loan agreement and you will find this clause. So, when you take a mortgage refinance loan, you are prematurely ending your original mortgage loan and inviting a penalty. But that's not all. You are also paying a property assessment fee since it's been some time since your house was assessed and your refinance lender wants to know its current valuation.
You also have to pay your broker his or her commission once you have accepted a refinance offer through him or her. The broker's commission in Idaho varies from 1% to 10% in inverse proportion to your personal credit rating. You also may have to pay 'points' (1 point = 1% of your refinance loan amount). Points serve to bring down the net interest rate on your refinance loan, but (unlike in the case of original mortgage loan) points are to be prepaid in one lump sum for a refinance loan. All this adds to make the total cost of your refinance loan considerably more than the interest rate alone.
Importance of APR
The solution to the problem outlined above lies in the 'APR' of your loan. APR is short for 'annualized percentage rate'. It takes into account all the costs that you will incur in obtaining your refinance loan and then computing this cost on an annualized basis. Therefore, the most important thing for you to remember when you are negotiating a mortgage refinance is: stay focused on the APR of your refinance loan regardless of the interest rate. Of course, low interest rates will keep your APR that much lower too, but you can be in for a disappointment if you stay oblivious of the APR during your search for a mortgage refinance deal.
Having understood the above, the next thing to do is to get a basic idea of what you can expect from the mortgage refinance market. Remember there is no universal package on offer. Each person is entitled to different terms depending on variables specific to the individual (such as: credit rating, the number of years he or she wants to retain ownership of the property, etc), and the property (such as: the type of house, its exact location in Idaho, etc). The best and easiest way to know your eligibilities is to log on to the websites of mortgage lenders or brokers, where you would normally find online calculators.
Use these calculators to know, within seconds, the terms of refinance you can expect from the market for different types of loans (such as fixed-rate, adjustable rate, interest only, jumbo, and so on). Some websites where you will find such calculators are: www.erate.com, www.mortgageloan.com, www.bankrate.com, and www.interest.com -- there are many others too, which you can locate through www.google.com.
Making your choice
Online results are usually not accurate, but are reasonably reliable to serve as the foundation of your across-the-desk negotiations with lenders or brokers. In Idaho, you can ask for a broker to call on you through http://www.1st-idaho-mortgage.com or through the sites named in the previous paragraph. These sites are not Idaho-specific, but they have a provision whereby you select the state and city where you are located and a broker close to your area will call you up.
It's important to remember that you should not depend on any one broker. Talk to three or more brokers and a couple of lenders too, and compare their offers and choose the offer most suited to your needs. And, to end where we started, don't be swayed by low interest rates alone. Insist on the APR at every stage of your negotiations with lenders and brokers.