With the economy showing signs of improvement, there are many homeowners wondering if they may have jumped the gun in terms of refinancing. Whether they opted to do so before the present decline in interest rates began, or are considering the feasibility now before the rates begin climbing again, it boils down to whether it makes sense financially to do so. While there is no limitation on how many times a homeowner may refinance, there are still some factors to consider that may tip the scales one way or the other. It also depends on finding a lender offering an affordable loan package, as well as meeting a new set of approval standards and mortgage loan credit requirements.
Factoring in Prepayment Fees
One major consideration is the possibility of a prepayment clause written into the original loan agreement. This stipulates that should the original mortgage be paid down before a specific date or time frame, a substantial amount of money must be paid to the lender as a penalty. These fees are generally based on a certain percentage of the original mortgage amount, and are put in place to ensure refinance lenders hold specific profit margins. The technique is designed to discourage a borrower from considering refinance options too often. If the original loan did not carry this penalty, it was more than likely offset by a higher interest rate applied.
Factoring in New Closing Costs
Should the borrower be fortunate enough to renegotiate the original mortgage with the same lender, there may be certain benefits to be had. Otherwise, the same expenditures will still apply to the new refinancing process, just as they were for the original loan. These costs include the origination, appraisal, title search, recording, and attorney fees. These closing costs can run from 3% to 5% of the total loan amount, which can become quite costly in terms of repetitive refinancing. However, if a borrower wants to do mortgage refinancing with no closing costs, it is possible to roll these closing costs into the loan itself, but interest will be added to this amount over the loan duration.