MORTGAGE refinance can be a tricky business in the state of Utah. There are many mortgage lenders and brokers in the state but you will find yourself confused about the choices available to you if you yourself are not familiar with the basic concepts. In this article, you will find the basics that will put you in good stead as you go about searching for mortgage refinance.
Mortgage Planners in utah
To begin with, you should know there is not much difference between purchase mortgage and mortgage refinance. Purchase mortgage is the loan you had taken to purchase your property. Mortgage refinance is also a mortgage loan, but this loan is used to pay back the remaining portion of your purchase loan.
A mortgage refinance loan therefore replaces your purchase mortgage, and you continue to pay back the refinance loan in monthly installments. Why, you would ask, should you take a new loan to pay back an old loan, and then carry the burden of paying back the new loan ?
The answer is simple. The mortgage loan market in the Utah is a dynamic one. Interest rates change frequently. If the current interest rates are lower than they were when you took your purchase loan, you are paying a higher interest rate than you should be paying in the current market conditions.
You could therefore save money if you pay back in one go the remainder of your high-interest purchase mortgage loan, and then pay back the new loan through monthly payments. In this way, you save money every month by opting for mortgage refinance.
Interest needn’t be low to justify refinance
It is not necessary that mortgage refinance makes sense only when interest rates are low. Even if interest rates are currently higher than before, you can still benefit by opting for a cash-out refinance if the market valuation of your property has substantially increased. The cash-out option gives you a lump sum of cash to meet with any immediate need.
It is also possible that your financial condition today has changed since you took your purchase mortgage loan. Today, you are earning much more and want to quickly get rid of the mortgage liability: this you can do by increasing your monthly payments so that the duration of your loan commitment is reduced.
Alternatively, you are earning less than before and therefore want to reduce your monthly outgoings: this you can do through a mortgage refinance deal that reduces your monthly payments but increases the duration of your loan.
Yet another possibility is that you have decided not to live in the mortgaged house for long and so you want to minimize your monthly payments for the time that you are living in the house, and then sell off the house to a new buyer who takes on the mortgage. In such a situation, you might also consider converting your fixed-rate loan into an adjustable rate loan with low monthly payments for a specific number of initial years.
It follows from the above that there is no one reason that makes people opt for mortgage refinance. How a refinance should justifiable for you depends on your needs and requirements. Of course, help is available in Utah, and you will need to talk to professionals – but after you have read the whole of this article.
Interest rate alone can mislead
Though we have dwelt on interest rates above, you should bear in mind that there are other factors too that add to the cost of your refinance loan. In fact, these ‘other factors’ can even offset the advantage of a low interest rate. Let’s look at these ‘other factors’ :
- Points : First and foremost, you should know of one difference between a purchase mortgage loan and a mortgage refinance loan in Utah. You might, or might not, have paid something called ‘points’ for your purchase mortgage loan. If you have, you will know that ‘points’ are payments you make to the lender to reduce your monthly payments. Each point is equivalent to one percent of the loan amount. Not all lenders in Utah insist on points, but some may. In the case of purchase mortgage loan, payment of points could have been staggered through time, but it may have to be paid upfront in the case of mortgage refinance.
- Other costs : In addition to interest and points, there are other costs that you have bear for your mortgage refinance loan. These costs include: property valuation fees, broker’s commission (ranging from 1% to 10% depending on your credit profile; better profile entails lower commission and vice versa), processing fees and, very importantly, the penalty you have to pay to your purchase mortgage loan lender for premature termination of your existing loan account).
Importance of APR
The crux of the foregoing is that interest rates can be a highly misleading indicator of the cost of a mortgage refinance loan. Therefore, you should never be swayed by ‘attractive’ interest rates; rather, you must insist on knowing the total cost of the loan on an annualized basis.
This annualized cost is called ‘annualized percentage rate’ or APR. The Trust in Lending Act, a US federal Act, mandates all lenders and brokers to specify the APR of a mortgage but there are stray instances of the market players concealing this vital information during negotiations with unknowing clients – only to shock them during the later stages of loan finalization.
So, make sure you are not kept in dark about APR at any stage of your quest for a mortgage refinance loan.
Now that you know the above basics, you should get down to figures. You can know what you can expect from the market within parameters specific to you, your requirement, and your property. These parameters include your credit profile, the amount of the original mortgage loan remaining to be paid, the amount of refinance loan you want, etc.
To know all this to a reasonable degree of reliability, you should use online mortgage refinance calculators available on websites like www.mortgageloan.com, www.mortgageloan.com, www.erate.com, www.bankrate.com, and others that you can search out through www.google.com. These calculators will give you a fairly reliable idea about your eligibilities under different loan types.
The final act
This is the stage in which you know not only the basics of mortgage refinance but also hard numbers. Now, you have to approach lenders / brokers closest to you in Utah. You can locate them through the same websites you used for your online calculations. Some of them contain directories of lenders / brokers in each state (so, you select Utah and then the city in which you live).
Other websites themselves arrange for a broker associated with them to contact you. Make sure you don’t depend on any one lender or broker.
Talk to a few of them, and weigh their advice with your online findings (there should not be wide differences). Finally, select one – and remember that you that pay only the particular broker through whom you finally take your mortgage refinance loan.