Mortgage Basics

Refinance

Refinancing can lower your monthly payment, shorten your loan term, or help you tap into your home's equity — but the right move depends on your specific numbers. Jared Halbert at Brick Mortgage has helped homeowners throughout Queen Creek and Arizona run those numbers to see whether refinancing actually makes sense for their situation. Here's what to consider:

 

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Rate is only part of the equation — the bigger question is whether the monthly savings will outweigh what refinancing costs you upfront. As a rule of thumb, look closely at refinancing once you can drop your rate by a percentage point or more. On a $350,000 loan, moving from 7% to 6% works out to roughly $230 less per month, excluding taxes and insurance. But if closing costs on that refinance run $6,000, it would take about two years of those savings just to break even — so how long you plan to stay in the home matters as much as the rate itself. Jared Halbert runs these numbers with Queen Creek and Arizona homeowners directly, rather than relying on rules of thumb alone, so you know your actual break-even point before deciding.

Most lenders charge fees to refinance a loan. So, if you plan to only stay in the property for a couple of years, your monthly savings may not accumulate to recoup these costs. Example: A lender charged $1,000 to refinance your loan that resulted in saving you $50 each month; it would take 20-months to recoup your initial costs. Some lenders will charge a slightly higher than average interest rate on refinance loans, but will waive all costs associated with the loan. This will depend on the interest rate on your current loan.

Starting with an application fee for $250 - $350, you may need to pay an origination fee typically 1% of your loan amount. In most cases you will pay the same costs you had with your current home loan for the title search, title insurance, lender fees, etc. The total sum could cost up to 2-3% of the loan amount. If you don't have the funds to pay for associated loan costs, you can search for lenders that offer "no-cost" loans which will charge a slightly higher interest rate.

Points are an upfront fee — one point equals 1% of your loan amount — that can lower your interest rate. Whether they're worth it depends on how long you'll hold the loan. See the full breakdown, with a real Arizona example, in our FAQ.

Generally yes, if you plan to stay in the home for several years — the monthly savings need time to outweigh the upfront cost. Read the full answer in our FAQ.

Locking your rate guarantees it for a set window (typically 30-60 days) while your loan closes, protecting you if rates rise during the process. Read the full answer in our FAQ.

It's unsure how interest rates will move at any given time, but your lender may estimate where interest rates are headed. If interest rates are expected to be volatile in the near future, considering locking your interest rate may be good because it allows you to qualify for the loan. Or, if your budget could handle a higher loan payment, or lender's lock fees, you may want to let interest rates "float" until the loan closing.

Even with poor credit getting a home loan is still possible. A lender will consider you to be a risky borrower and to compensate for this they will charge you a higher interest rate, and expect a higher down payment usually 20%-50%. The worse your credit history is, the more you can expect to pay.

Not necessarily, if you've been late with your payments less than 3-times in the past year, and the payments were no more than 30-days late, you still have a good change at getting a competitive interest rate. Most lenders will accept certain reasons for this like an illness, or job-change, but explanations are required.

There are two important things to consider when choosing one lender over another one:

  • Quality of Service – Especially for first-time homebuyers who will have many questions about the total financing process and available loan options. Finding a lender with outstanding service skills that you trust will comfortably guide you every step of the way, so ask questions, even before you fill-out an application.
  • Cost of Services – It's good to ask potential lenders upfront what they charge for their services and any fees involved. They should be able to give you facts and get you through the financing process so that you feel confident knowing that you made a good decision by choosing them.