It seems as though everyone is talking about refinancing these days. With interest rates at an all-time low, more and more
homeowners are taking advantage of the opportunity to reduce their monthly mortgage payments and/or take more equity out of their homes for capital improvements, college tuition, a new car or a much-needed vacation.
According to the New York City Rent Guidelines Board's 1998 Mortgage Survey, the average up-front costs charged by banks have declined to less than one percent for refinanced loans and terms have become more flexible in response to greater levels of demand and declining defaults in the past five years. The survey also found that refinancing activity continues to sustain the increased momentum of mortgage lending activity. About half the lenders completing the survey reported refinancing 25 to 100 percent of the outstanding loans in their portfolios at lower rates.
The Rule of Two
If you are considering such a move, there are two key areas you'll need to research: How much will it save now and in the long run? And how much will it cost? In the old days the rule of two was applied, meaning that refinancing was recommended whenever mortgage money was available for at least two percent less than the interest rate on the present mortgage, if there was no intention of selling the unit for at least two years. The theory behind this rule was that it would take about this long for the monthly savings from the lower rate to erase the costs of refinancing, which typically include a mortgage application fee, credit check, property survey and appraisal, title search and points or extra interest payable in the first year of a new loan.