The average cost of a home in Westchester County is $683,904. If you are like most homeowners you have a mortgage on your property typically at a fixed interest rate over 15 or 30 years. If you took out that mortgage several years ago it is possible that the interest rate is higher than today’s rate.
The amount of money paid in interest can add up. In fact, over the life of your mortgage much of your payments will go to interest. Many people are shocked to learn that if you pay your mortgage over 30 years you will have paid almost as much, if not more, in interest as the amount borrowed!
Refinancing your mortgage is similar to obtaining your original mortgage. You will need to find a lender willing to extend a loan and the procedures and costs will generally be the same as well. This means that you can expect to go through closing and pay the related closing costs.
This mortgage calculator allows you to determine your monthly payment and also view the total interest paid through an amortization schedule.
So what can you do? Refinance your mortgage. This is simply replacing your current mortgage with a new mortgage at today’s lower rate. Here are some things to consider when making your decision on refinancing:
Table of Contents
- How Do You Find Current Mortgage Rates
- When Is The Right Time To Refinance
- Where To Find Your Mortgage
- Mortgage Refinancing Costs
- Refinancing With Bad Credit
- Taxes and Mortgage Refinancing
How Do You Find Current Mortgage Rates
The 30-year fixed mortgage is perhaps the most current home loan type. It is linked closely to the 10-year Treasury bond. As the Treasury bond rate increases so typically will mortgage rates increase. The Treasury bond is a government-backed security and because of that support is viewed upon one of the safest investments available to investors. Mortgages on the other hand are less safe so investors require a higher return. For this reason mortgage rates are generally higher than Treasury notes even though their rate movements are closely aligned. You can track the 10-year Treasury online on most financial websites including Yahoo Finance, CNBC or directly from the U.S. Treasury website.
When is the Right Time to Refinance
Refinancing a mortgage is a financial decision that should warrant the same decision-making process as your original mortgage. Will you be staying in the home for a while? Many homeowners make the mistake of going through the closing process, obtaining a mortgage and then moving out of the home shortly after. By doing that you will miss out on the interest savings over the life of the loan.
You will also want to consider the interest rate difference between your current mortgage and the refinanced mortgage. A refinance is most attractive when the current interest rate is at least two percent lower than your original rate. It is a good idea to compare your total payments that is the amount you are borrowing plus the interest and additional lending costs, to see if you will save money over the long run.
When to buy a home is a decision that varies from borrower to borrower. However, some basic motivators are that you:
- Plan on staying in the home for at least 3 years
- Want a lower interest loan compared to your current mortgage rate
- Have an adjustable rate mortgage and prefer a longer-term fixed
If you are a homeowner with equity in your property you may be able to get a new mortgage and receive a portion of the borrowed amount in cash. Also known as a cash-out refinance you can benefit most from this option when you need to pay off high interest debt.
Where to Find Your Mortgage
There are numerous lenders out there offering a wide array of mortgages. They can vary by rate, term or loan amount. Many borrowers do best by avoiding exotic offerings and instead sticking to mortgages with a fixed term and low interest rate. Mortgages are available from local banks, national banks and even credit unions. Many borrowers find it best to refinance with their original lender but with any large purchase it is always a good idea to shop around.
Your Mortgage Refinancing Costs
Refinancing a loan is essentially paying off your current loan and acquiring a new loan. Therefore you can expect to pay closing costs such as settlement costs, title searches and other related fees. Some lenders advertise no closing costs but there is no free lunch. The costs associated with processing the mortgage usually end up rolled up into the cost of the loan. Expect to pay about 3% of the borrowed amount in closing costs.
Once you apply for the mortgage the lender will arrange for an appraisal. The amount you are eligible to borrow depends largely on how much the home is appraised at. Here is a list of expenses you can expect to pay during closing:
- Application Fee
- Appraisal Fee
- Attorney Fee
- Home Inspection
- Mortgage Insurance
- Title Search
Borrowers may incur additional costs including points, which is an optional fee paid to obtain an even lower interest rate on the mortgage.
Refinancing With Bad Credit
What if you want to refinance your mortgage but have bad credit? It is not impossible but having bad credit could make it more difficult to get a home loan. If you qualify lenders may increase the interest rate of the loan to compensate for the added risk. They may also scrutinize your income more closely to make sure that you can cover the monthly payment. If you think you fall into this category check your credit. Lenders tend to deny applicants who have credit scores below 580 and have questionable payment history. If on the other hand your credit score isn’t that great but your payment history is solid you might qualify for FHA streamline refinancing.
Regardless of whether you are trying to refinance your mortgage with good credit or bad credit you will want to have proof of your income such as income tax returns. If you are self-employed your lender may also request your business financial statements.
If you do your own taxes or hire someone the bottom line is that you must have your tax documents in order. Doing so will make the mortgage loan process smoother and help you secure a mortgage faster. This can be particularly helpful if you need to close quickly.
Taxes and Mortgage Refinancing
Similar to initial mortgages a borrower of a refinanced mortgage enjoys the same benefits when it comes to taxes. Interest on refinanced mortgages is deductible up to $750,000 ($1,000,000 if the original mortgage was acquired before December 16, 2017). Interest paid in excess of these amounts is generally not deductible.
Points are usually deductible over the life of the loan. However, if you pay points and use the proceeds to upgrade your home then the amount attributed to the home improvement is deductible in the current year.