8 must-ask mortgage and refi questions
Whether you're buying a house or refinancing, there is more to a mortgage than the rate. Here are eight questions to ask while mortgage shopping. You'll have to ask yourself some of these questions; others can only be answered by mortgage professionals and insurers.
1. How long do I plan to stay in the
"I always say, 'What's the game plan? How long do you plan to be in the property?'" says Ellen Bitton, CEO of Park Avenue Mortgage Group in New York.
The answer affects whether you would be better off paying points to lower your rate, whether you should get a fixed-rate or adjustable-rate loan, whether you should accept a prepayment penalty. If you're thinking of refinancing, the answer helps you decide whether you should refinance at all.
If you have no idea how long you'll live in the house, keep in mind that homeowners stay in one residence for a median duration of 8.2 years, according to 1998 U.S. Census data. In other words, half of homeowners move within 8.2 years. The other half, naturally, stay in their homes longer. Do you feel "average"? If so, maybe it means you'll stay home for about eight years or so.
(FYI, with renters, the median stay in one residence is 2.1 years.)
2. How much are the costs of getting
3. How long will it take to break even?
In either case, all you have to do is divide the upfront cost (of discount points if you're buying a house and of all the closing costs if you're refinancing) by the monthly savings you would get. That tells you how many months it will take to break even. If it's going to take five years to break even but you expect to stay in the house four more years ...
4. What makes me feel comfortable?
As far as Bitton is concerned, there often is no right or wrong answer when people ask whether they should pay discount points or choose a 15-year or 30-year mortgage. "There's not just an objective, dollars-and-cents number," Bitton says. "There's also the psychological factor. What are you going to feel comfortable with?"
She has clients in their 70s and 80s who get 30-year mortgages because that's what makes them feel comfortable. Some homeowners would rather refinance once and never have to bother with refinancing again, so they pay a lot of points for a rock-bottom rate. As a bonus, they have something to boast about at cocktail parties. Other clients simply want the lowest possible payments, so they snag an interest-only, five-year ARM. All understand what they're getting into and have found their comfort zones.
Article continued at http://www.bankrate.com/brm/news/mortgages/20021003a.asp?page=default
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