refinancing questions

[johny-b-bad]

Hi, I live in San Diego and i found a good site where i can apply for re financing and then i get several offers in my email from banks and i can just pick the best deal for me. But the site didnt have any info on the best time to consider refinancing, when should i consider refinancing my home loan?

[jeffrey]

The rule of thumb regarding refinancing a mortgage has been to do so when interest rates fell by 2 percentage points or more. Although still widely accepted, this general rule fails to take into account a large number of factors specific to your circumstances. Factors such as the current interest rate on your mortgage, the current market interest rate, how many years you plan to stay in the home, whether your current mortgage is fixed or variable, whether the mortgage carries a prepayment penalty and how many years you have paid on your current mortgage all will effect whether or not it is beneficial to refinance. Most importantly, however, the rule fails to take into account that it is now possible to find loans that have no discount points and reduced closing costs. These costs used to be standard and were the primary reason the 2 percentage point rule was developed.

Discount Points (a fee that lenders charge with one point being equal to 1 percent of the loan amount) and closing costs (loan-origination, flood-tracking, loan documentation preparation, recording, appraisal, tax service, title insurance, inspection, credit report, underwriting, escrow, notary, etc fees) can easily add thousands of dollars in up front costs when trying to refinance and get a better interest rate. With some lending institutions now offering no closing cost loans where all these fees are waived, it throws the 2 percentage point rule right out the window.