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Does Refinancing Make Sense for You?

 

By John J. Stahl III, The Coastal Bank

Refinancing a residential property can be a daunting task for first-time homebuyers or consumers who have never refinanced a property. To refinance, homeowners pay off their original loan and “start over” with more attractive mortgage loan terms and a lower interest rate.

For example, if you have a 15-year mortgage with a balance of $150,000 and a fixed interest rate of 7 percent and you refinance it for a mortgage with a 3 percent interest rate, you could save more than $29,000 in interest payments over the life of the loan.

Refinancing can save you money and give you the peace of mind of a mortgage with fixed monthly payments that are consistent throughout the life of the loan. Here are a few tips to help determine if refinancing a property in today’s market is a viable option that makes sense for you:

 

Do your homework. Refinancing in the current housing market means you have to shop around, compare mortgage options and negotiate the best price. The research you do in the short-term will pay off in the long-term. It may be more cost effective to stick with your current lender as they may not require a new appraisal. However, don’t be afraid to investigate your options and find a lender willing to offer a better deal.

Ask questions. How long do you plan on staying in your home? Long-term residents should consider refinancing options to build equity in their home faster, lower their current interest rate and monthly mortgage payment, and switch from an adjustable rate mortgage loan to a fixed-rate loan. It usually doesn’t make sense to refinance your loan if you’re planning on moving in the near future.

Determine the value of your home. If you owe more than your home is worth, the bank cannot offer more favorable terms or a mortgage loan for more than the current market value of your property. Instead, the homeowner will be required to pay out-of-pocket for the cash difference between what is owed and what the bank can lend. 

Make sure you have cash on hand. As with any new mortgage loan, refinancing requires a percentage of the loan in down payment costs. Be prepared to pay closing costs, title insurance, attorney fees and often appraisal costs, transfer fees and taxes. However, if you’re considering refinancing, you can opt to add the closing costs into the new loan balance. Consider whether the lower interest rate and payment will offset your out-of-pocket costs.

Know what you will need to refinance. Banks will want to verify your credit score, how much equity you have in the home, your employment history, income and assets. You will need to be prepared to provide this documentation as part of the refinancing process.

To qualify for a refinance, you must be current on your mortgage payments and have a good credit history. Speak with a mortgage expert to determine whether refinancing is the right option for your unique situation.

John J. Stahl III is the mortgage director and senior vice president at The Coastal Bank. He can be reached at (912) 201-7365 or jjstahl@thecoastalbank.com.


   

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