December 07, 2001
By: Bev Dodd
Home loan refinance: The very best in terms and rates
If you get the best deal at the time of your home loan refinance, you might never have to refinance again. Make sure you compare interest rates and points at the time of your home loan refinance it does make a difference. We'll discuss this more below.
Make sure you compare interest rates when deciding on a home loan refinance, using a constant number of points. An 8 percent rate tied to 2 points is a lot more expensive than an 8 percent rate tied to 0 points When faced with the need to compare different rate/point combinations among lenders, you should first convert each quoted rate to one based on a constant number of points and then find the lender with the lowest rate. In making this conversion, you should use a traditional rule of thumb that equates each point to a 1/4 of 1 percent change in the interest rate. This would make an 8 percent loan with 0 points equivalent to a 7.75 percent loan with 1 point.
Trying to decide on a 20 or 30 yr home loan refinance loan? Normally these terms have a fixed monthly payment over the life of the loan and are low risk. Although they may have a higher initial interest rate, than a adjustable loan. Which means you may pay more interest charges over the life of the loan, depending on whether rates on adjustable mortgages go up or down.
In the past, the rule of thumb was to refinance into a longer-term, fixed-rate loan at the lowest possible rate. You would need to recoup the cost of refinancing with lower monthly mortgage payments and the usual time frame to recoup the entire cost was approximately 12 months. If you got the best deal at the time of your home loan refinance loan, you might never have to refinance again.
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