If you’re considering refinancing your home you more than likely have a few questions that you would like to have answered prior to signing on the refinance, questions about the overall costs and fees associated with the refinance. You may be wondering about the usefulness of FHA refinance calculators. Don’t worry. You’re normal. Refinancing is a big financial move and it’s not uncommon to have questions or concerns regarding the impact that it’s going to have on your finances. So to put your mind at ease, here are a few answers to some common refinance question.
ARM, Fixed, and Fees
When refinancing you are going to be offered two mortgage options – the ARM loan or the fixed rate loan. The difference between the two is simply the interest rate. With an adjustable rate mortgage loan the interest rate is adjustable, or will be after a few years, and with a fixed loan the interest rate remains the same for the entire life of the loan. A lot of people have questions regarding these two types and whether one is better than the other. In reality, the loan that you need will depend on your plans for the home you are currently residing in.
Most of the time when you get an adjustable rate mortgage the interest rate is slightly lower than you would be able to secure with a fixed mortgage. However, the catch is that after five years or so that rate is going to start adjusting and you won’t know whether it will jump or drop, so your mortgage payment will start to fluctuate. It’s a bit of a risk when you have a long term loan. If those rates jump one or two percent, you’re going to feel that on your mortgage payment. With the fixed you may get locked in at a slightly higher rate but you will not have to worry about your mortgage payment changing. Ideally when refinancing you would secure a fixed rate mortgage if you intend to have the mortgage for more than five years. If not, an adjustable rate mortgage is something to consider because it could save you some money short term.
Another common concern for homeowners is the fees that come with the refinance. They can be in the thousands and this expense can be hard to swallow. What you need to know is that there are different types of refinances and sometimes those fees can be rolled into the mortgage. However, this usually results in a higher interest rate so you want to be sure this is a cost effective option before pursuing it. Again, knowing how long you intend to stay in the property will help you determine this. If you intend to leave within a few years, it may be cost effective to pay a slightly higher rate in order to avoid thousands of dollars of fees. However, when sitting on the loan long term that slightly increased interest rate will eventually cost you more than it initially saved. In this case you’d probably be better off paying the fees up front.
Using the FHA Refinance Calculators
You may have noticed that it is mentioned previously to determine whether something is cost effective before deciding on it. This is where the FHA refinance calculators come in. These calculators enable you to put in your current loan information and compare it to the quotes that you will get from various lenders. They will show you how much you will save on the refinance and whether or not it will be worth it to you. They will also give you a break-even point. This is what you want to look at before you make your decision. The break-even point is the amount of time it will take you to pay off the expenses of the refinance, usually it’s a few years. After that point the refinance should start to pay off, saving you money in the long run. The break-even point is going to help you determine what kind of mortgage you need depending on the amount of time you intend to stay in the home. FHA refinance calculators will also give you a total loan amount number, which is just how much you are going to spend on the loan after it is completely paid off. Unless you are in dire financial straits, you want to make sure this number is lower on the refinance than it is on your current mortgage, otherwise you end up spending more than you need on an unnecessary loan.
While you can do all the homework in the world, you won’t know exactly how much the refinance will be worth to you until you’ve discussed your options with a loan officer and a good lender. They will then be able to steer you in the right direction so you can get the refinance you need.