NEW JERSEY offers home mortgagers several options for mortgage refinance. If you own a mortgaged home in this state, you must be knowing the basics of the mortgage market. There is hardly a major difference between a purchase mortgage loan and a mortgage refinance loan. A mortgage refinance loan is also a mortgage loan, and the interest rates and other rules and regulations are almost the same for both (one likely difference is explained further down).
Despite the similarities between purchase mortgage and mortgage refinance, the latter is quite an intricate business because it incorporates many variables specific to the borrower and his/her property. Professional advisors are of course there in New Jersey to help you, but you too should have basic knowledge to ensure that you don’t depend entirely on the professional advisor. This article attempts to equip you with the power of information which will stand you in good stead as you get down to talking to brokers / lenders face-to-face.
Basics to know :
There are a few basics that you should be thorough with to ensure that you are able to negotiate with brokers / lenders on equal terms, i.e., without being helplessly dependent on them. These basics are as follows:
- Interest rates : Interest rates are always fluctuating. So, you don’t have to opt for refinance every time rates drop. You should think of refinance only when you stand to benefit from it tangibly and substantially, and this not guaranteed by low interest rates alone.
- True cost : The true cost of a refinance loan is much more than the interest rate. There are many upfront fees and commissions you have to make during the closure of your refinance loan. When you add these up, the actual cost of your refinance will be much more than suggested by ‘low’ interest rates.
- Penalty : In mortgage refinance, an additional cost you are likely to incur (which would not apply to purchase mortgage) is the penalty to be paid to the lender of the purchase mortgage loan for premature termination of your contract with them.
- Points : As a person already having taken a purchase mortgage loan, you will be familiar with the concept of ‘points’. In mortgage refinance, points may have to be paid in one lump sum at the start of the loan’s life unlike in the case of purchase mortgage where payment of points can be staggered across a period of time. Though not all lenders in New Jersey insist on points, it is entirely at their discretion. If you can afford it, you should pay as many points as you can since the effective interest rate on your refinance loan will then be lower.
- Brokerage : There is no fixed mortgage brokerage fee in New Jersey. It all depends on your negotiations with the broker. Whatever you agree, you should agree on it in advance and not leave it to the closure stage. You have to pay your broker upfront during the closure. The brokerage varies on the basis of your own credit rating. Higher rating means lower brokerage, and vice versa. The range is from 1% to 10% of the refinance loan amount, and is inversely proportional to your credit rating. Only the broker through whom you have obtained your refinance loan has to be paid. Nobody else needs be paid anything, regardless of how much time they spent on your case (unless you have mutually agreed to pay them for it).
- APR : The non-interest costs listed above add up to the total cost of your loan. It is expressed in terms of annual percentage rate (APR). The federal Trust in Lending law makes it mandatory for all lenders and brokers to clearly specify the APR to their customers; yet it sometimes happens that the customer is unable to register it during oral negotiations, or the lender / broker somehow are unable to explain it in a language the customer can easily understand. So, throughout your negotiation with every lender / broker, insist on APR over interest rate.
Do your homework
Mortgage refinance is no nursery rhyme. There are more technicalities involved in it than purchase mortgage. Of course, there are professionals in the New Jersey market to guide all the way through to the closure. But professionals respect customers who have a basic knowledge. It makes their life easier and also protects you from the probability, howsoever remote, of you being taken for a ride by an unscrupulous broker more interested in his/her own benefit at the expense of yours. Fortunately for borrowers, the Internet has made it possible to gain free information on what each borrower is roughly eligible for.
To optimize your use of the Internet, visit the websites of some mortgage and mortgage refinance lenders / brokers. Most such websites include online calculators. Use them. They will ask you for details specific to you and the home for which you are exploring the mortgage refinance option. Provide the calculators with the details asked. The most crucial determinants of your eligibilities are: your own credit rating, and the amount of refinance sought. Of course, other information is also required – e.g., the type of house, amount of original mortgage loan remaining to be paid, the amount of refinance loan you want, the points, if any, you are willing to pay, the interest rate you are looking at, the number of years you want to own your home, the exact location of your home in New Jersey, and so on.
You also have to choose between the types of refinance. Since you have already taken a purchase mortgage loan, this writer presumes you know of the different types of loans available in the mortgage market. Find your eligibilities for all the types of loans, and compare results. Armed with these results, you should start interacting with lenders / brokers nearest to you in New Jersey and benchmark their offers with your online findings.
In the final analysis, all of the above looks fine – but which are the websites that you should use for online calculations? Well, there are many out there on the worldwide web. You don’t necessarily have to use websites hosted in New Jersey or firms headquartered in any particular city. Some of the websites this writer has visited and was satisfied with results are: www.mortgageloan.com, www.erate.com, www.interest.com, and www.bankrate.com. You can find many other good websites through the www.google.com search engine. These are also the websites that contain directories of mortgage finance / refinance firms in different cities of each state in the United States. Select New Jersey and then the city you are in – and get going!