Common Refinancing Questions & Answers

Q: Mortgage rates are at favorable levels. Is it time for me to refinance?

A: When interest rates fall, a homeowner should definitely call Alliance Mortgage about refinancing, but he or she should discuss their entire financial situation and goals before making any final decision. Is your goal to lower your monthly payment? Consolidate debts? Get cash out for large purchases? Change your interest deduction expense for your taxes? Ask Alliance Mortgage to provide a couple of refinancing scenarios for you, showing how your loan term length, monthly payment and your total interest expense on the loan will change. After looking at these scenarios, it will be clear whether or not you should spend the money to refinance.

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Q: How do I know when I should refinance my current mortgage loan?

A: It is often said that you should refinance when mortgage rates are 2% lower than the rate you currently have on your loan. Refinancing may be a viable option even if the interest rate difference is less than 2%. A modest reduction in the loan rate can still trim your monthly payment. For example, the monthly payment (excluding taxes & insurance) would be about $770 on a $100,000 loan at 8.5%. If the rate were lowered to 7.5%, the monthly payment would be about $700, a savings of $70. The significance of such savings in any scenario will depend on your income, budget, loan amount and the change in interest rate. Alliance Mortgage can help calculate the different scenarios.

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Q: Should I try to pay as many discount points as possible to lower my loan's interest rate?

A: If you plan on staying in the property for at least a few years, paying discount points to lower the loan's interest rate can be a good way to lower your required monthly loan payment (and possibly increase the loan amount that you can afford to borrow). If you only plan to stay in the property for a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front. Contact Alliance Mortgage to see how long it would take for your monthly savings to recoup the costs of the discount points.

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Q: What does it mean to lock the interest rate on a mortgage loan?

A: Due to the nature of interest rate movements, mortgage rates can change dramatically from the day you apply for a mortgage loan to the day you close the transaction. If interest rates rise sharply during the application process, it could make a borrower's mortgage payment larger than s/he previously thought. To protect against this uncertainty, a lender can allow the borrower to 'lock-in' the loan's interest rate, guaranteeing the borrower the prevailing loan rate for a specified period of time (often 30-60 days). Call us for details and pricing on this service.

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Q: Should I lock-in my loan rate when I apply for a mortgage loan?

A: No one knows for sure how interest rates will move at any given time, but we may be able to give you an estimate of where it thinks mortgage rates are headed. If interest rates are expected to be volatile in the near future, you may want to consider locking your interest rate if rising rates will no longer allow you to qualify for the loan. If your budget can handle a higher loan payment, you might want to consider allowing the interest rate to 'float' until the loan closing.

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Q: I've only been late a couple of times on my credit card bills. Does this mean I will have to pay an extremely high interest rate?

A: Not necessarily. If you have been late less than three times in the past year, and the payments were no more than 30 days late, you probably have a pretty good chance at getting a home loan at a competitive interest rate. If the late-pays were 60+ days late and cannot be explained, you may have to settle for a higher interest rate.

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Still have questions? Contact Alliance Mortgage