Awww Yeah! Refinancing Your Loan

Home ownership has its perks—building equity being one of them. When you have enough equity built, you can borrow against it.

Or maybe you just want to change from an adjustable rate mortgage(ARM) to a fixed mortgage. Refinancing can help you change the loan variables to suit your needs.

Refinancing = Applying For a Shiny New Loan

When you refinance you have options. You can decide to refinance with your existing lenderorwith a new lender. Remember all of those documentsyou provided for your original loan? No doubt your updated documents will look a bit different as some time has passed. These docs will prove how much money you make and where you’ve worked, show what your assets are, detail your credit, and assess your debt-to-income ratio. Then you have to qualifyand your property will be appraised. Similar to how the appraisal was used for the original loan, the current value of your home must be enough to warrant the new amount you’re applying to finance.

Let’s talk dollars and cents.

You’re probably on the hunt for more favorable loan terms to save some cash. So let’s look at the costs of refinancing and other considerations. 

  • Loan closing costs: 2%-4% of the loan amount.Here are some examples:
    • You’re refinancing $400,000. The loan closing costs will be between $8,000 and $16,000. That’s no small chunk of change.
  • How long is it going to take you to recoup those closing costs?This is similar to looking at the tipping point when weighing renting or buying an apartment. When will the closing costs be paid for and you will actually be seeing the benefits of refinancing money-wise?
    • Let’s say your loan closing costs totaled $10,000 and that refinancing saves you $400/month. It will take you 25 months to recoup that $10,000 ‘investment.’
  • If you see “no cost” refinancing listed somewhere—think twice. They’re trying to hook you and you’re going to end up paying somehow.

Oh, co-ops. You’re so wonderful and yet—you have so many special rules and regulations. Here’s the lowdown:

  • The co-op board must approve your refinancing.
  • You should be in good standing when you ask the board to approve refinancing and not owe the building any money. Back maintenance fees? Definitely get that in check before making the big ask.
  • The board is more likely to approve your refinancing if you will receive a lower interest rate and you prove that you’re not taking on any additional debt.

Refinancing a co-op and a condo are two very differentexperiences. Here’s why:

  • You and your condo association must qualify for refinancing.
  • There are rules in place that govern refinancing condos. Certain stipulations must be met regarding how many owner-occupied units there are, how much the apartment is worth, and how much of the building is used commercially vs residentially.

Your best bet is to contact several lendersand check to see if you and your association qualify. Some lenders are put off by all of this and won’t refinance condos, so do ask around.

 Final consideration:

New York laws regarding title insurance have been in flux recently. One big consumer-friendly change is lowering title insurance rates for people who refinance their mortgages. The savings depends on if you stick with the original lender or not and how long you’ve held the original loan. Worth checking out!