Does Your Interest Rate Determine the Actual Cost of Your Mortgage?

There are often misconceptions by homeowners and prospective homebuyers when it comes to the mortgage process.   Joe Costa  a mortgage professional with San Diego's Park Place Financial Group can help you understand how the process works.  A very common misunderstanding is that the interest rate reflects the true cost of the mortgage amount.  The interest rate alone is only a part of your mortgage payment.  The APR or annual percentage rate actually reflects the true cost of your home mortgage payment.  The APR includes not only your interest rate but also other factors such as points, private mortgage insurance(PMI) if applicable, and other fees for underwriting and loan origination.  When a potential borrowere or homeowner is looking to shop around and compare rates for a new loan or a refinance,  it is extremely important to remember that the APR is the more inclusive rate and will give you a better idea of what you will truly pay for your mortgage.

Is Refinancing Worth The Cost?

Some have said that only when your new interest is at least two points lower, should you refinance your loan. That could have been accurate a while back, but with refinancing dropping in cost recently, it's a good time to think about a new loan! Refinancing has various advantages that will often make it worth the initial expenditure a few times over.

Advantages of Refinancing

You might be able to lower your interest rate (sometimes significantly) and reduce your mortgage payment amount with your refinanced mortgage loan. You also might be given the option of pulling out some of the equity in your property by "cashing out" a sum of money to renovate your home, consolidate debt, or take your family on a vacation. With lower rates, you might also be able to build up home equity faster by moving to a shorter-term mortgage loan.

The Cost

Of course, you will have some fees and expenses during your process of refinancing. When you refinance, you're paying for basically the same things you were charged for at the time you got your original mortgage loan. Included in the list will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Do the Math

Paying discount points can get you a better interest rate. The money you'll save over the life of the mortgage loan might be significant if you have paid up front about 3% of the new loan total. We recommend that you talk to a tax professional before acting on hear-say that the paid points can be deducted on your federal income taxes.

Another thing about taxes is that if your interest rate is lowered, naturally you'll also be lowering the interest amount that you'll be able to deduct on your federal income taxes. This is another expense that some borrowers consider. We can help you do the math! Call Joe Costa at San Diego, California's Park Place Financial Group (646) 245-7856.

All things considered, for most the total of initial costs to refinance will be made up soon in monthly savings. We can help you find out your options, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the near future, and your money on hand. Call us at (646) 245-7856 to get started.

Want to know more about refinancing? Call us at 646-245-7856.