Should You Also
Consider a Different Type of Mortgage?
If you are thinking about refinancing your mortgage, you might want to consider other
types of mortgages. For example, you might want to look into a 15-year, fixed-rate
mortgage. In this plan, your mortgage payments are somewhat higher than a longer-term
loan, but you pay substantially less interest over the life of the loan and build equity
more quickly. (Of course, this also means you have less interest to deduct on your income
tax return.)
You also might want to consider refinancing if you have an
adjustable rate mortgage with high or no limits on interest rate increases. You might want
to switch to a fixed-rate mortgage or to an adjustable rate mortgage that limits changes
in the rate at each adjustment date as well as over the life of the loan.
If you decide to apply for refinancing with a particular lender,
and if you do not want to let the interest rate "float" until closing, get a
written statement guaranteeing the interest rate and the number of discount points that
you will pay at closing. This binding commitment or "lock-in" ensures that the
lender will not raise these costs even if rates increase before you settle on the new
loan. You also may consider requesting an agreement where the interest rate can decrease
but not increase before closing. If you cannot get the lender to put this information in
writing, you may wish to choose one who will.
Most lenders place a limit on the length of time (say, 60 days)
they will guarantee the interest rate. You must sign the loan during that time or lose the
benefit of that particular rate. Because many people are refinancing their mortgages,
there may be a delay in processing the papers. Therefore, you may want to contact your
loan officer periodically to check on the progress of your loan approval and to see if
additional information is needed |
