Refinancing a San Diego, CA Mortgage

With interest rates currently so low, many homeowners are refinancing their San Diego, CA mortgage. Mortgage refinancing is when you replace your existing mortgage with a new one to receive a lower monthly payment. The new mortgage generally has a lower interest rate and/or longer term than your previous mortgage.

Benefits of Refinancing a San Diego, CA Mortgage
The purpose of refinancing a San Diego, CA mortgage is to get a more affordable, lower monthly mortgage payment. Homeowners who purchased their homes when interest rates were high can take advantage of today’s lower rates through refinancing.

Refinancing can also allow you to change the format of your loan. For example, if your original loan is an Adjustable Rate Mortgage (ARM), but you realize after a few years that there is too much risk involved with an ARM and you’d like to change to a Fixed Rate Mortgage (FRM) instead, you can do this through refinancing.

Disadvantages of Refinancing a San Diego, CA Mortgage
Though refinancing means a lower monthly mortgage payment, it may also mean a longer loan term on which you’ll have to pay interest. This may make your overall mortgage cost more than if you had not refinanced at all. (Also keep in mind that you have to repay closing costs on your new mortgage when you refinance.) Before you decide to refinance your San Diego, CA mortgage, do the math to ensure that refinancing will actually save you money in the long run.

For example, let’s suppose that my original mortgage was $160,000 for 15 years. My monthly payment was $1,570. After five years of making that monthly mortgage payment, I decide to refinance my San Diego, CA mortgage in order to get a lower interest rate. I end up getting a great deal and now have a rate that is two percentage points lower than my previous mortgage’s rate. Now my monthly payment is only $1,100. However, I chose to get a new loan with a 15-year term. In doing so, I’ve added back the five years to the life of my loan. I’ll have to make this new monthly payment for another 15 years.

Consider More Than Just Interest Rate
Many of us keep an eye on interest rate alone, and neglect other important aspects of refinancing a mortgage. While interest rate is important, the percentage you should actually consider is the Annual Percentage Rate (APR). APR is the actual rate you will pay over the life of the loan. It takes into account other costs like points and fees. Do not settle for a refinancing program that offers an APR that is .5% higher than your interest rate.

Understand the Points System
When refinancing a San Diego, CA mortgage, you’ll need to know about points. A mortgage point is equal to 1% of the total amount of your mortgage. Lenders initially charge points up-front. Sometimes lenders will offer you a lower interest rate if you pay more points. Borrowers who plan to sell their home or refinance within the next few years, however, should avoid paying lots of points up-front. This is because you would need to stay in your home for several years in order to recoup in interest savings the amount you paid in points.

Be Aware of Refinancing Fees
Your loan originator will give you a "good faith estimate" regarding your closing costs. Be sure that this estimate is in line with the final figure you receive. Keep an eye out for possible "junk fees," such as underwriting or document preparation charges. If you see any extra fees on the bottom line, ask your loan originator if they can be removed. Another fee to avoid is called a prepayment penalty. This is a charge one incurs when they pay off their mortgage before the loan term ends.

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