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Community Connections<br />
Business Spotlight<br />
Page 8 www.TheTownCommon.com November <strong>15</strong> -22, 20<strong>17</strong><br />
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For<br />
Sale<br />
With interest rates at historical<br />
lows the thought from most<br />
homeowners is well, there is no<br />
way we can refinance again with<br />
what our rate is now. Most<br />
homeowners and potential<br />
buyers are acutely aware of where<br />
current rates are at. If they aren’t,<br />
many times a mortgage agent will<br />
notify them that it is a good time<br />
to refinance. Last week I spoke<br />
with a couple I sold a home to<br />
years ago and they mentioned that<br />
they got a call from a mortgage<br />
agent saying they were offering<br />
3.75% for a 30 year mortgage.<br />
While this scenario is attractive<br />
for this couple, for others there<br />
are things to be aware of before<br />
making what would seem to be<br />
the easy choice of refinancing.<br />
Sit Down and Review<br />
•<br />
•<br />
Find a mortgage agent<br />
whom you trust or if you<br />
don’t know one talk with<br />
friends to see what kind of<br />
experience they had with<br />
theirs…OR…ask you<br />
local REALTOR® for help<br />
in finding someone.<br />
Do you know whether or<br />
not a fixed rate or ARM is<br />
best? Do you know all the<br />
terms? Are you going to be<br />
penalized for refinancing<br />
again? Ask your mortgage<br />
agent.<br />
To Refinance or Not to<br />
Refinance<br />
There are all sorts of theories<br />
out there about when it makes<br />
sense to refinance. “Only if the<br />
rate drops by a percentage point,<br />
only if it drops by half a point,<br />
only if you plan on staying in<br />
the house/condo, etc”. What<br />
really matters is how long it<br />
will take you to “break even”<br />
and whether or not you plan<br />
to live in the home that long.<br />
Let me explain: If you had a<br />
$400,000 30-year mortgage<br />
with an 4.5 percent interest rate,<br />
your monthly principal and<br />
interest payment (not including<br />
taxes or homeowners insurance)<br />
would be $2,026.74. If you<br />
refinanced at 3.75 percent, your<br />
new monthly principal would be<br />
$1,852.46, a savings of $<strong>17</strong>4.28<br />
per month. Let’s say that your<br />
new closing costs amounted to<br />
$3,000, it would take you a little<br />
more than <strong>17</strong> months to break<br />
even. ($<strong>17</strong>4.28 x <strong>17</strong> months =<br />
$2,962.76). If you planned to<br />
stay in your home for at least <strong>17</strong><br />
more months, then refinancing<br />
would be a wise move. If you<br />
planned to sell before then,<br />
Real Estate • For Sale<br />
Time to Refinance?<br />
Sports • Sports • Sports<br />
By John McCarthy, Rowley Realty<br />
you might not want to bother<br />
refinancing. Certainly if there<br />
were no closing costs associated<br />
Pets, Animals, Plus<br />
Health with this scenario, & and Fitness<br />
many<br />
lenders offer them, then it would<br />
make perfect sense to refinance.<br />
The Wildcard<br />
In the above scenario the one<br />
thing that people do not always<br />
take into account is interest v.<br />
principal. When you refinance<br />
to this “new” 30 year mortgage<br />
at 3.75% you start the clock all<br />
over again. What I mean by that<br />
is if you are 5 years into your<br />
$400,000 you would have paid it<br />
down to $363,972.30 in principal<br />
at 4.5% rate. You started paying<br />
$526.74 toward the principal or<br />
balance at the beginning of this<br />
loan, with the rest going into<br />
interest and after 5 years are up<br />
to over $650 a month toward<br />
the principal balance as you<br />
increase your principal slightly<br />
each month while your interest<br />
declines. So…if you refinance<br />
the new amount $363,972.30 at<br />
3.75% your payment would be<br />
even lower, however you start all<br />
over again with a lower number<br />
going into your principal,<br />
approximately $548 per month,<br />
over $100 less per month than<br />
you were paying. Bottom line is<br />
the check you are writing to the<br />
bank or mortgage company is<br />
less each month but it will take<br />
you longer to get that mortgage<br />
paid off.<br />
Not All Created Equal: Don’t<br />
make the mistake of choosing<br />
a mortgage based only on<br />
its stated annual percentage<br />
rate (APR), because there are<br />
a variety of other important<br />
variables to consider, such as:<br />
Fixed Rate vs. ARM’s:<br />
There are two basic types<br />
of mortgages: Fixed (i.e.,<br />
unchanging) interest rates and<br />
variable rates or adjustable rate<br />
mortgages (ARM’s) which can<br />
change after a predetermined<br />
amount of time, such as 1,<br />
3, 5 or 7 years (these are the<br />
most common). While an<br />
ARM usually offers a lower<br />
introductory rate than a fixedrate<br />
mortgage (assuming the<br />
term of the mortgage is the<br />
same), the ARM’s rate could<br />
jump in the future if interest<br />
rates rise. If you plan to stay in<br />
your home for a long time, it<br />
may make sense to opt for the<br />
predictability and security of<br />
a fixed rate, whereas an ARM<br />
might make sense if you plan<br />
to sell before its rate is allowed<br />
to go up.<br />
Length of mortgage: The<br />
shorter term mortgages (ARM’s<br />
and anything less than 30 years)<br />
offer lower interest rates than<br />
long-term mortgages (30 years<br />
or more), they usually involve<br />
higher monthly payments.<br />
Points: Points, also known as<br />
“origination fees” or “discount<br />
fees” are fees that you pay to<br />
a lender or broker when you<br />
refinance. These points are<br />
assessed as a cost for a borrower<br />
to get a lower rate. For example,<br />
if you want a mortgage rate of<br />
3.5% on a <strong>15</strong> year mortgage<br />
you have to pay one point (one<br />
point equals one percent of the<br />
amount of the loan). Without<br />
any points the rate would be<br />
3.75%. While a “no points,<br />
no closing cost” mortgage does<br />
not have the points or closing<br />
costs, it could prove to be more<br />
expensive if the lender charges<br />
a higher interest rate instead.<br />
Therefore closing costs and<br />
points need to be factored in<br />
when determining whether<br />
the savings from a lower rate<br />
will justify refinancing.<br />
Fees: You may have an<br />
appraisal fee, credit report<br />
charge, origination charges,<br />
flood certification fee or<br />
recording charges. There are<br />
other fees that I am missing<br />
but all these fees have one<br />
thing in common; they should<br />
be disclosed up front by the<br />
lender and be accurate.<br />
Before you refinance consider<br />
everything; closing costs, points,<br />
where you are in your current<br />
mortgage and what you will be<br />
paying on your principal with<br />
your new mortgage. All this is info<br />
you need to make an informed<br />
decision. So many buyers in the<br />
recent past stretched themselves<br />
by refinancing into ARM’s or<br />
pulling money out of their<br />
home to fund that new vacation<br />
home, car or boat. Please keep<br />
in mind that before you make a<br />
commitment to refinance your<br />
mortgage, it’s important to do<br />
your homework and determine<br />
whether such a move is the right<br />
one for you.<br />
If you have any questions about<br />
this article, real estate in general<br />
or are looking to buy or sell a<br />
home please contact me, John<br />
McCarthy at Rowley Realty, <strong>16</strong>5<br />
Main St., Rowley, MA 01969,<br />
Phone: 978 948-2758, Cell 978<br />
835-2573 or via email at john@<br />
rowleyrealestate.com<br />
Cable Professional Building<br />
130 County Road, Ipswich, MA 01938