THERE is a consumer-level misconception in New Hampshire that low interest rates are enough reason to jump into the mortgage refinance bandwagon. The reality is different.
While low interest rates are a consideration, mortgage refinance is too complex a subject to be guided solely by \interest rates. It can even happen that despite low interest rates, mortgage refinance can be an unfeasible proposition for some.
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The reverse too could be true, i.e., mortgage refinance my make sense even in a situation of higher interest rates. This complexity arises because there is no single benefit of mortgage refinance applicable to all who have a mortgage. Needs vary from person to person, and mortgage refinance can be tailored to fulfill different needs depending on what the consumer wants. Interest rates are just one criterion.
Given the complexity of the subject, there is a strong possibility of people being unpleasantly surprised at the refinance deal finally offered to them after weeks of scouring the market. This article will attempt to simplify the issues underlying mortgage refinance so that you are better prepared to proceed with getting your refinance without disappointment.
Here, we shall look at the common misconceptions surrounding mortgage refinance in New Hampshire as reported by some mortgage brokers registered in the state. These misconceptions are:
- Interest rate the only criterion : The fact is that interest rate is not the only criterion in deciding whether a consumer should opt for mortgage refinance or not. There are other costs to be incurred on the way and which are payable. These costs include :
- Broker’s commission : This varies from 1% to 10% depending on the credit profile of the consumer. Better credit profile means lower commission and vice versa.
- Property valuation charges : The market value of your property at the time of applying for a mortgage refinance loan is an important criterion for refinance. This calls for your property to be valuated, and this involves payment of a fee.
- Penalty for premature termination of existing mortgage account : When you seek mortgage refinance, it means that you want to prematurely close your existing mortgage account and start a new one. This subjects you to a penalty, which you have to pay to the lender of your existing mortgage loan.
- Points : Points are payments you make to the lender of the refinance loan to reduce your monthly payments. No all lenders in New Hampshire insist on points, but some do – and it’s in your interest to pay points if you can afford since it makes it easier to manage your debt. Unlike in purchase mortgage, points in mortgage refinance usually have to be paid in one lump sum at the start of the loan term – and this too adds to the immediate cost of your refinance loan. One point is equivalent to 1% of the refinance loan you get.
- Processing fee :Lenders may charge a processing fee, and this too adds to the cost of your refinance loan.
It follows from the above that interest rate is not the only cost-determinant of a mortgage refinance loan. That’s why the federal Truth in Lending Act makes it mandatory for brokers and lenders to take all costs into account and calculate the annual percentage rate (APR) of a loan. However, many people have been surprised on seeing that the APR is higher than the interest rate.
- Advertised rates are applicable rates : This is another misconception. Brokers often attract customers to the negotiating table by bandying ‘lowest interest rates’. As a consumer, you should know that these rates are applicable to people with above-average credit profile. Most consumers have average to below-average credit profiles, and the lowest advertised rates are not extendable to them.
- Longer duration loans carry lower interest : This is an entirely wrong view held, surprisingly, by many people. The fact is that the longer the duration of your loan –whether purchase mortgage or mortgage refinance – the higher is the interest rate applicable. This is true in all types of mortgage and mortgage refinance loans – whether fixed-rate, adjustable rate, interest-only, jumbo, etc. Jumbo loans – i.e., loans shoes amounts exceed the limits stipulated by government-sponsored enterprises such as Fannie Mae and Freddie Mac -- are the worst in this aspect because they anyway carry a higher interest rate. Not surprisingly, jumbo loans are the least popular in New Hampshire as well as in the other states.
- Payment of points can be staggered : No, they usually can’t be in mortgage refinance. They usually have to be paid in one lump sum at the formal closure (i.e., finalization) of the refinance loan. This misconception has risen probably from the fact that payment of points can be staggered across a period of time in the case of purchase mortgage. But what we are talking about here is mortgage refinance, not purchase mortgage.
- Cash-out is guaranteed in refinance : Cash-out is a mortgage refinance option that gets the mortgager (i.e., the refinance loan taker) a lump sum of cash. Moreover, this is not guaranteed in every case of refinance. It is available only if the market value of your property has increased considerably since you purchased it, and if the other costs of refinance as described above don’t offset the benefit of market appreciation. Also, it’s better if one does not avail of the cash-out and, instead, pumps it back into the refinance loan account as points, which too have been described above. Of course, one has to take the cash if he or she needs it for any immediate purpose.
- Mortgage rules are same in all states : This is only partially true. Yes, interest rates, conforming loan limits, and overall legal framework are the same in most states of the United States (exceptions: Alaska, Hawaii, Guam, and US Virgin Islands with regard to conforming loan limits). Despite the uniformity of the overall legal framework, lenders have their own policies for different states – especially in matters such as verification processes, and the weight given to credit ratings. That’s why mortgage refinance is relatively easy to come by in, say, New York State than in, say, Vermont.
- Going about it : Now that the popular misconceptions are cleared, it’s time to get into the process o obtaining mortgage refinance loan. The best way to start the hunt is to get initial estimates from online resources – i.e., mortgage websites such as www.mortgageloan.com, www.bankrate.com, www.erate.com, and others. On these websites, you will fee online refinance calculators. Use these calculators by entering into them the details asked. Some websites give you instant estimates, while others send you estimates from one or more brokers a few days later. Use these estimates as the basis of your subsequent negotiations.
While most mortgage websites offer services of brokers, there are also some – like www.mortgageloan.com – that also contain state-by-state and city-by-city directories of brokers / lenders so that you may contact them directly.
Therefore, you may click on New Hampshire and then on the city in which your property is located, to get the contact details of the listed service-providers. To ensure that you have got the best deal to which you are entitled, it would be a good idea to talk to at least one broker or lender outside of the online resources you used.
If there is no significant gap between what this service-provider advises and the best advice you got through online results and their follow-up, you are quite likely to have landed the best deal for you.