WHY REFINANCE?

There are several reasons you might want to refinance, but most people fit into one (or more) of the basic four categories. Most people want to reduce their monthly payments; some want to consolidate outstanding debt; some want to tap built-up equity in their homes, and some just want to get out of a mortgage product that they don't like, or that's costing too much -- going from an ARM to a fixed rate mortgage, for example. Whatever group or groups you fit with, there are certain rules that you must follow to reach the goal desired. Straying from some of these basics can end up not only costing time, but could end up costing more money in the future.

2% RULE OF THUMB?

  The traditional refinance rule of thumb -- that you must get an interest rate at least 2% below the interest rate you currently have -- is often wrong. Why? Waiting for a two percent difference from your rate to show up in the marketplace can actually cost you money. For some people, as little as one-half of one percent can be enough, if all other factors fall into place. In addition, since ARMs are priced at below-market rates, it's almost always possible to get that 2% spread -- though you may or may not want to. The only way to determine whether refinancing is for you is to go about it the right way: by analyzing the time and the cost factors. Crossroad Financial Services can help you in analyzing your individual situation and can provide options that will clarify whether refinancing is right for you.

WHAT IS YOUR TIME FRAME?

  What is your time frame? Simply put, it's how long you plan on holding this mortgage, although it can be more complicated than that. You might have a product that demands refinancing -- like a balloon mortgage -- your time frame is only until the balloon period runs out. But, if you don't have to refinance, your time frame can be as long as you plan to stay in the home you're in. When determining your time factor, it's crucial to be honest with yourself, since the time factor will determine if and when you begin to save money. It's a fact that refinancing can cost money, so you'll want to be as certain as possible of your time frame. For example, is it likely that your employer will relocate you to another city, or that you'll change jobs soon? Do you have a physical condition that could require you to move? Evaluating all possibilities is vital, but only you know what your time frame will be.

MORE OR LESS MORTGAGE?

  One other factor involved in refinancing your mortgage: how much money you'll need or want to borrow. In most cases you are able to borrow up to 95% of your home's current appraised value if you're simply refinancing your existing loan. But, if you're looking to tap equity, known in the mortgage industry as a cash-out refinance, you'll possibly find that it's less than 95% in the conventional (conforming) mortgage market. If you are willing to pay a slightly higher rate, it is possible to refinance and take cash out up to 100% of the value of your home.There are also programs available that will allow you to borrow up to 125% of the value of your home, priced with a higher interest rate. This type of loan is mostly beneficial as a home equity loan as the higher interest would be paid on a smaller loan amount.

  Another consideration with a cash-out refinance: as mentioned, the interest rate may be slightly higher than that offered for a straight rate and term refinance. However, if you are wanting cash out for any purpose, you will still be borrowing the money at a very low rate in comparison to a personal loan or a cash advance on a credit card...and the interest paid on a mortgage loan is tax deductible (check with your tax advisor).

CASH OUT REFINANCE OR HOME EQUITY LOAN?

  If freeing up cash in your home is what you'd like to do, there's a way to do so, even without refinancing: taking a home-equity loan. Home equity loans can be a viable alternative to a cash-out refinance. Revolving 'line of credit' type home equity loans work much like a credit card does, and lenders will generally offer you as much as 100% of the equity in your home (the appraised value less the balance of your first mortgage). Most lines are pegged to the Prime rate plus a margin. There are fixed rate home equity loans available too, and they function much like any first or second mortgage does.

CLOSING COSTS?

  Now that we know why you want to refinance, how long you're planning to hold the mortgage, and how much money you want or need to borrow, we can look into closing costs. Closing costs are what you will pay to obtain that new mortgage. As you will remember from getting your original mortgage, there are standard costs involved in any mortgage transaction-- costs for appraising your property, title insurance, credit checks, underwriting fees, and others. In most cases, you can roll these costs into your new loan to avoid depleting your cash on hand.

WHICH KIND OF MORTGAGE IS BEST?

  Getting the wrong kind of mortgage for your situation, even with a low interest rate, can end up costing you money in the long run. Conversely, getting the right kind of mortgage, without a low enough interest rate, can make it take a very long time to recoup your closing costs.

  That's because some mortgages are better suited for a shorter time frame, some for mid-length times, and others for the long haul. The time frame you have available will help determine what kinds of products are best suited to your needs. Refinancing to a 30 year fixed rate mortgage may be the wrong selection for you if you don't plan on holding the mortgage long enough to make it pay.

  The biggest savings, as you'd expect, come from paying less interest. If you are comfortable with the monthly payment you are now making, it may very well be possible for you to refinance into a mortgage with a shorter term -- 15 or 20 years, for example -- for the very same monthly payment you have now. A 15 year mortgage payment is only about 25% higher than that of a 30 year -- not double, as you might expect. While this won't put money back in your pocket every month, it will let you build equity in your home twice as fast, which can pay you back in a lump sum if and when you sell the home, or let you borrow larger sums against it later. So, the term of the loan you want can also help determine your overall savings.

  As mentioned, your time frame will determine the best types of mortgage for you. For example, if your time frame is reasonably short, say one year, you might want to consider a short term mortgage like a one-year adjustable rate mortgage. With a very low first year's interest rate, and a per-adjustment cap, you can virtually guarantee that the interest rate would be lower than an available 30 year fixed rate, and markedly below your current interest rate. Don't laugh -- a 4% interest rate spread could recoup $3000 in closing costs in less than one year, plus you would still have a second year at below market rates. It's certainly worth considering an ARM if your time frame is very short.

  As you might expect, your mortgage choices expand as your time frame does. With a time frame of five to seven years, you might even consider a balloon mortgage. Your payments are based on a term as long as thirty years, but your mortgage may end at a much shorter time. Since your mortgage can end at a shorter time, you get an added benefit: an interest rate that is lower than the prevailing 30 year fixed rate mortgage.

  If your time frame runs two years or longer, you can start to consider other mortgages, including the 30 year fixed rate. As an alternative, you could also consider taking an ARM, and be prepared to refinance again in another three or four years. How long will it take for your refinance to save you money? That all depends upon the difference between your existing monthly payment and the monthly payment on your new mortgage. Let us provide you with a free analysis and rate quote.

WHEN WILL I 'BREAK EVEN'?

  Most people want to recoup their closing costs within a "reasonable" amount of time -- typically, two or three years. Of course, lowering your monthly payment (if that's why you refinanced) will put a few dollars back in your pocket every month. Your break-even point (the point where the savings each month has offset the cost of your refinance) should be short enough that you enjoy at least a year or two of savings after the break-even point expired.

  To start with, you'll need to know what the available interest rates are on the type of mortgage that fits your needs; the difference between your current and projected monthly payments; and your closing costs. Simply complete our on line application for a free quote and savings analysis.

FINDING THE LOWEST INTEREST RATES

  When you refinance, you'll want to find the best overall terms available for the type of loan you need. Crossroad Financial Services has access to over 150 mortgage lenders. This allows us to provide the best rates and programs that fit your individual circumstances. Again, simply complete our simple on-line application and we will provide you with the information you need to make an educated decision.