To simplify comparisons you should (on the many rates that may be thrown to you) concentrate on the APR. The Annual Percentage Rate will provide you with the best figure to know which loan is best for you. This figure takes into account not only the interest payable over the term of the loan but also any other related charges or fees. As such it’s the best measure for comparing the cost of borrowing from one lender to another.
Risk and Rate
Since refinance loans are secured loans, they carry rather low interest rates. However, your credit score will still modify the interest rate you’ll be charged for your loan. Thus, a good credit score applicant will get significantly lower interest rates than a bad one. Risk and rate are directly related and whenever you represent a higher risk, this is unavoidably translated into higher interest rates.
There are also other loan terms that modify the risk implied in the financial transaction and thus modify the interest rate you’ll have to pay for the refinance loan. Insurance, loan length, interest rate type, etc. are some examples of these terms. You can always discuss with the lender these subjects so as to get a competitive rate by modifying loan terms.
Different Loans, Different Rates
Different kinds of loans carry different rates. The interest rate charged for a 10 years home loan will be lower than the rate charged for a 20 years or 30 years home loan. Also, the interest rate charged for home loans with fixed rates tends to be higher than that of variable rate. However, variable rates can rise to new heights changing the original ratio.
Cash out refinance loans tend to carry higher rates than plain refinance loans. This is because the costs of cash out refinance loans include additional charges, more insurance, etc. It all adds up to the fact that the loan terms will determine the interest rate and that little variation on the loan terms can result in raises or reductions on the interest rate.
Huge Savings
Thus, the key to refinancing is to agree with the lender the loan terms in order to obtain a lower interest rate. This can be boosted by requesting a refinance home loan with a shorter loan length. The main benefit of refinancing is that by obtaining a lower interest rate you can get huge savings over the whole life of the loan.
For example: If you have an outstanding mortgage of $50,000 with 10 years more of repayment at an 8% APR, You’ll end up paying $40,000 on interests by the end of the loan term. If you refinance at a 7% APR, you’ll end up paying $35,000 on interests which represents savings of $5,000.
By: Kate Ross
Posts Tagged ‘Home Loan’
Importance Of Interest Rate On Refinance Loans
March 9th, 2010Home Equity Loans vs. Refinance Loans
January 30th, 2010
To many people, there seems to be very little difference between a home equity loan and a refinance loan. However, there are some differences. You will find that a home equity loan, whether it looks like a more traditional loan or a line of credit, offers a little more flexibility. However, the refinance loan usually offers a lower interest rate. Both types of loans, however, have interest that is tax deductible. Make sure you understand the features of both before making a decision between home equity loans vs. refinance loans.
Home Equity Loans
Included in home equity loans are home equity lines of credit. You can decide how much of your equity you want to use as collateral for the loan. Equity is how much you “own” of your home. It is the difference between how much you have left to pay on your home loan and how much your home is worth on the current market. You can borrow part of your equity, or you can borrow all of it. Additionally, you can choose how you want to receive the money: as a lump sum or as a line of credit. This can allow you some flexibility. If you choose the line of credit, you don’t have to borrow up to the limit, but more is available if you need it.
Refinance Loans
While some of the accumulated equity in your home is used in a refinance loan, the loan is really meant to establish new terms for your loan. The entire mortgage is redone, and some of the accumulated equity you have can be added in for a “cash out,” where you take cash and your home is refinanced for an amount that is higher over all. You have no decision as to how to take your loan. It is lump sum. It is applied to “pay off” your “old” mortgage, and the remainder, the “cash out” portion, is given to you. Usually, it is possible to spread the terms out over a longer period of time than a home equity loan, and you usually end up with a lower interest rate.
Home Equity Loans vs. Refinance Loans: Which is Best For You?
You have to decide which would work best for you. If your purpose is to mainly to fix an interest rate or change the loan term to something longer or shorter, and maybe get a little extra cash to pay some bills or take a vacation, the home refinance loan may work best for you. However, if you are looking for flexibility, and you are not sure exactly how much you need, a home equity loan, in the form of a line of credit, might be your best option. Do your research, though, and shop around for a loan that suits your specific needs.
By: L. Sampson
Lowest Interest Rate Mortgage Refinance Loans – 3 Ways to Get a Low Rate Refinance
November 24th, 2009
The lower your interest rate on your refinance mortgage, the more money
you will save. But not all refinance loans are created equal. To get
the lowest interest rates, follow these three tips when applying for you
refinancing.
1. Refinance Your Entire Mortgage
Refinancing your entire mortgage will help you to qualify for the
lowest rates. Having split mortgages or a home equity line of credit
elevates your risk level and rates.
However, if you have a really good rate on one mortgage, then you may
not want to combine those mortgages. Take the time to request quotes for
both loan situations. Within minutes, you can get an answer from
lenders and know which is your best option.
2. Don’t Cash Out Your Equity
Cashing out part or all of your home’s equity will also raise your
refinance rates. So keep that equity in place while you apply for
refinancing. It acts much like a down payment did for your original home loan.
The larger your equity, the better your rates.
If you want to tap into your equity, consider applying for a separate
loan after you refinance, like a home equity line of credit. That way
you won’t be paying a higher rate on your entire principal.
3. Lower Your Rate With Points
As with your first mortgage, you can lower your rates by buying points.
This is a bit risky in that you have to keep your loan for seven years
usually to recoup the cost. To make sure this is your best choice,
compare lending offers. Calculate the cost of points and your potential
savings.
In addition to these tips, comparison shopping will also help you get a
lower interest rate. Each lender looks at refinancing applications
differently, so with careful searching, you can get a better deal. Start by
requesting a loan quote, then compare numbers, both interest and
closing costs.
Just remember that the lowest interest rate will not always be the
cheapest loan. Factor in the cost of fees to be sure you will come out on
top, especially if you plan to sell or refinance in a couple of years.
By: Carrie Reeder