At today’s low interest rates, refinancing your mortgage can be a great way to reduce monthly mortgage payments and save thousands of dollars in interest. But we all know that the mortgage process is tougher that it used to be.
I recently asked Isaac Grant, a mortgage broker with First Meridian Mortgage, a few of the questions I hear about refinancing. He does this every day, and has been providing mortgages in the New York area for over 15 years.
1. When should someone consider refinancing? Is there a rule of thumb?
That’s a really a really good question. Everyone’s situation is different. You need to consider your goal and whether the financial benefit of refinancing exceeds the costs. The goal could be reducing your monthly payment, reducing the term of the loan or taking out cash to pay for improvements.
The old rule of thumb was if you can save 2% on your rate then do it. But it really does depend.
If there is a benefit, it makes sense.
2. What if you have *already* refinanced? When does it make sense (or not) to do it again?
There may or may not be a benefit. Part of my job is to figure that out, before you waste your time completing a mortgage application and paying for an appraisal.
If you have recently refinanced, it is probably less likely, but there very well may still be a benefit.
3. Is the cost of refinancing different for a house, condo or co-op?
Co-ops are less expensive, by far. Closing costs on a co-op may be 20-25% of a similar condo. The biggest reason for the difference is that there is no mortgage tax or title insurance on co-ops.
For a house or condo, the mortgage tax is a significant expense. In New York State it is 1.05 percent, minus $30. New York City adds another 0 .75 percent. So New York City residents pay a total of 1.8 percent. Actually, it is more on loans over $500,000 – 1.925 percent. [Note: Many states do not have this tax.]
You may be able to avoid this tax when refinancing with a legal document called a CEMA (Consolidation Extension Modification Agreement). This agreement transfers the original note and revises it, rather than starting a new loan note. To do it, the mortgage broker orders it from the the bank who pulls the original note. The bank’s attorney then prepares the CEMA, and the title company records it at the closing.
The fees for the CEMA may be up to $1500, but it is worth it if it saves you thousands in tax. In New York City this is the most important document as it can save homeowners a lot of money.
If you bought your property (house or condo) within 10 years of refinancing, you will get a discount on the title insurance as well.
4. How long does the process take from start to finish?
It really depends on whether you are doing CEMA. It could be 30-45 days, but add 30 days to that if you are doing a CEMA, for a total of 60-75 days.
5. Do I need an attorney?
There is no law that says you need one. There is less need in a refinancing than when you purchase for the first time, as the lawyer does not negotiate your loan rate or terms.
6. How much equity do I need to refinance?
Generally the biggest saving can be achieved if you have least 20% equity in your home. This means you owe on your mortgage less than 80% of the home’s appraised value.
Thank you so much, Isaac!
Please contact Isaac directly at 914-629-3820 or firstname.lastname@example.org if you have questions about refinancing your mortgage.
Isaac Grant is not affiliated with Raymond James Financial Services.