FROM Anderson to Indianapolis to Washington, whichever city or town in the state of Indiana in which you have a mortgaged property, there is always an option for mortgage refinance. But it’s crucial that you consider certain factors before you can judge whether a refinance would be meaningful for you.
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For example, if your existing mortgage loan is close to the end of is term, a refinance would probably not be the best thing to do, given the costs of refinance involved over and above the prevailing interest rates. Nevertheless, refinance works for most mortgagers in Indiana, but you need prior information about the intricacies of mortgage refinance before you set about talking to lenders or brokers. This article attempts to equip you with such information.
Types of mortgage refinance
Let it be clear that a mortgage refinance loan is essentially another mortgage loan. It’s just that a refinance loan replaces the original loan, and the mortgager has to continue servicing the refinance loan like his or her original mortgage loan (or purchase mortgage loan) albeit on more favorable terms. As such, the interest rates applicable to mortgage refinance as well as the types of refinance loans in Indiana are the same as those for purchase mortgage. The usual types are: fixed-rate mortgage, adjustable-rate mortgage, interest-only mortgage, and jumbo loans.
Since you are reading this article on mortgage refinance, it is presumed that you have already taken a purchase mortgage loan (which you want to refinance), and are therefore conversant with the types of mortgage, hence mortgage refinance, loans available in your state. In mortgage refinance, however, there is an option of cash-out, which means that you get a lump sum of cash if your property’s market value has sizably increased since you took the purchase mortgage loan and if you choose the cash-out refinance option. However, mortgage refinance is a trickier business than purchase mortgage because some costs not applicable to purchase mortgage – such as penalty for premature termination of an existing loan account – apply to mortgage refinance.
Interest rates
Interest rates in the Indiana mortgage market change almost everyday. Though these changes are usually by a few decimal points, they work out to a considerable quantum of money since mortgage or mortgage refinance loans are for big amounts. To know what the rate today is, and how it has varied over the past few days, you should log into mortgage finance websites such as www.mortgageloan.com, www.erate.com, www.bankrate.com among others. At the time of writing this article (early April, 2008), rates are lower but not as low as in 2004. Since interest rates vary almost on a daily basis, there’s no point in discussing today’s rate. We shall therefore look at four important issues concerning mortgage refinance interest rates – issues that will be relevant at any time irrespective of what the rates are on a given day.
- Lowest Rate Is Not For All Many mortgage refinance lenders and brokers advertise ‘low’ or ‘the ‘lowest’ interest rates. Don’t assume that everybody is entitled to those rates. The fact is that advertised rates are applicable to customers with top credit scores, and not everybody enjoys such a score. Chances are that your credit score is average; so the interest rate applicable to you will more than that applicable to someone with a higher score.
- APR Matters More Than Interest Rate : Interest rate is hardly an indicator of the viability of the mortgage refinance option for you. As a borrower, you are concerned with the total cost of your loan, whereas the interest rate represents only one item of cost.
The real cost of your refinance loan will include many upfront payments you will have to make before you formally get the refinance, and these costs include property valuation charges, broker’s commission (varying between 1% and 10% of the refinance loan, depending inversely on your credit score), processing charges for your refinance loan, as well as the penalty you have to pay for prematurely ending your original mortgage loan account. The total cost of your refinance loan is expressed as ‘annual percentage rate’ (APR), which thus is a more crucial indicator than the interest rate.
- Interest Rate Vis-à-vis Duration : In common logic, one would expect interest rates to inversely proportional to the duration of the loan. This logic stems from the logic of insurance, but mortgage and mortgage refinance is a different business. In is business, longer duration spells higher interest rates, and vice versa.
For example, on 8th April, 2008, a 30-year fixed rate mortgage (FRM) announced on www.mortgageloan.com carried a 5.48% interest whereas a 15-year FRM carried a 4.96 % interest. In the same vein, a 3/1 adjustable rate mortgage (ARM) came on a 5.23% interest rate while a 5/1 ARM came on rate of 5.40%.
In contrast to all this, a 30-year jumbo loan came at a rate as high as 6.72% (note: jumbo loans always come at high interest because they exceed the ‘conforming loan limits’ specified by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac).
- Higher Rate May Also Justify Refinance : It is not necessarily true that mortgage refinance makes sense only when interest rates are lower than those prevailing at the time of taking the purchase mortgage loan.
Different people have different needs at different times. Suppose, a person has suffered a financial setback and wants to reduce his monthly payments by increasing the duration of this mortgage or wants a lump sum of cash. He can probably fulfill this need by careful refinance even if the interest rate is a notch or two higher than before.
Or, suppose a person’s plans have changed and he wants to sell off his property sooner than originally planned. In such a situation, reducing his monthly payment by extending the duration of the loan makes sense even if the applicable interest rate is higher. Since he will sell off his property soon, the unpaid portion of the refinance loan at the time of sale would be immaterial since the lender would sell the house to someone else.
Conclusion
Mortgage refinance is a complex business and professional advice is a must. However, the points mentioned above should make certain underlying issues clear. Once these are clear, and before you start talking to real-world mortgage refinance lenders or brokers, you should get an idea of what the market can offer you within the parameters specific to you (particularly your credit rating), your property (type, location, etc), your existing mortgage loan (how much remains to be paid), and your required refinance loan (the amount).
You can independently obtain a rough idea about all this from online mortgage refinance calculators accessible on websites such as www.mortgageloan.com, www.bankrate.com, www.erate.com, www.americanmortgagefundingcorp.com, and many others that you can identify through a good web search engine like www.google.com.
These calculators will provide you with approximations of your eligibilities, which you can use as your reference in negotiations with brokers and lenders closest to you in Indiana. You can access directories of these professionals, or request for a contact, through the websites named in this article. If you have understood the issues covered in this article, and if you follow the guidelines stated, you are unlikely to get anything less than the best mortgage refinance deal you are eligible for in the state of Indiana.
