Question by ajude: Would it be better to pay large lump sum to current mortgage before refinancing?
Currently looking at refinancing home, but can’t decide if it would be better to add additional monies to current mortgage to lower amount to be refinanced, or refinance and put that sum onto new mortgage.
Answer by Nichole R
It depends on your reasoning for refinancing. Are you trying to get a lower monthly payment? Save more money in the long run by lowering your interest rate? Trying to get cash back to pay off some debts? I’ve been working in mortgage for over a year and I’ve seen a ton of scenarios, especially now with the rates being so low.
If you currently have an interest rate that is more than one full percentage point higher than the current rates, you MIGHT want to consider refinancing. Instead of puting a lump sum of money towards the current mortgage, use it as a down-payment on the new refinance.
Check out a local credit union if you have one. They are not-for-profit. That means, they DO make profits so that they can function as a business and offer more products, but that is not the focus of the institution. If I were to refinance with my credit union there would be an origination fee that is 1% of the loan amount. This fee covers the labor that it takes for the mortgage department to create your loan. The rest of the fees are paid out to contract providers such as appraisers and title companies.
Also, most credit unions will not charge any fees to pay off your mortgage early. If you have an extra $ 50/month that you could apply towards principal, you could pay your mortgage off so much sooner. With a $ 165,000 house, paying $ 225 extra towards principle every month take a 30 year mortgage and pays it off in 15 years!
Ask around for Good Faith Estimates. This is non-commital and the institutions have to provide the fees that they charge and what they are for. Compare them and see if the closing costs are worth it for you.
If you owe less than $ 50,000 I would encourage you to look into the rates for a Home Equity LOAN. They are usually 15 year fixed loans (different than a line of credit which has a variable rate) and have lower interest rates than a mortgage loan. You also wouldn’t have all of the closing costs associated with a regular refinance.
Give your answer to this question below!