WISCONSIN HOMEOWNERSHIP PRESERVATION EDUCATION Refinancing
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WHPE
Refinancing
period, let’s look at how much money Drew and Judy would save by refinancing the above
mortgage from an 8 percent to a 6 percent interest rate.
$132.21 * 12 = $1,160.52/year
Unfortunately, it’s not quite that easy. Refinancing costs money and that will have to be
factored in before the homeowner should make a decision. When buying a house for the first
time, there is . They also had to pay some fees. A loan offered at a lower interest rate may look
very good at first glance, but the homeowner should:
Ask what kind and the amount of feeds to be charged on the new loan: There are
standard feeds on any mortgage loan but it is important for you to look for unusual fees.
Your local homeownership counselor can help you determine if the proposed loan fees
are standard or not.
Consider if they have an existing second or third mortgage with restrictions: When you
first bought your home, if you received some money from your lending institution and
some from a nonprofit organization, the lender’s loan is a first mortgage and the
nonprofit’s is a second mortgage. Sometimes, there are other funds available to help
first-time homebuyers. A third source of funds would be a third mortgage.
o If multiple institutions lent money to you, you will need to meet all the
conditions of their loans. Everyone (the bank, the nonprofit, etc.) has their own
set of “loan conditions.” For example, it is common for many families taking this
course to have received “down payment assistance” which is often offered in
the form of a second mortgage. Many times this is government-based funding.
The city, county, state, or other government entity that made the loan may not
approve of the new loan partner or mortgage holder. It is very important that
you check your current set of loan documents and all of the mortgage partners
to see if they approve of you refinancing their portion of your home mortgage
loan.
Determine if the new loan ahs prepayment penalties: A prepayment penalty is a big red
flag that indicates that the new loan that you are considering may not be in your best
interest. It penalizes you if you want to save money on your mortgage by making extra
payments or pay it off earlier than scheduled.
Re-examine your current credit status: Remember when your credit report was “pulled”
and examined to determine if you were ready to buy a house? Well, the same thing will
happen again if you choose to refinance your mortgage.
Examine your most recent mortgage statement and consider how much you have “paid
down” on your loan: Most mortgages are paid out over a 30-year term. What is you live
in your home and pay on your mortgage for 20 years? You would have to consider
whether it makes sense to refinance the last 10- years of your mortgage loan.
Remember, you pay most of the interest on your mortgage loan in the beginning. You
may find that you can’t save much money by refinancing.