Florida Mortgage Refinancing Basics: Comparing Offers

Once you’ve decided that a Florida refinance makes sense, it’s time to shop around so you can compare offers and perform a detailed break-even analysis.
The break-even point
In the end, deciding whether the cost of refinancing is worth it comes down to a simple question: “How long will it take before I start to save money?” In theory, this is a simple calculation. You start with the amount you will save by lowering your monthly payment. Then, you add up all the costs associated with Florida mortgage refinancing and divide the total by your monthly savings.

For example, let’s assume that refinancing would lower your payment from $1,000 to $800 (for a savings of $200 per month) and your prepayment penalty, closing costs and points add up to $5,000. Divide $5,000 by $200 and you’ll see that it would take 25 months to realize the savings.

In reality, however, your break-even point also depends on other factors, including your tax situation and whether you pay closing costs upfront or add them to the principal of your new mortgage. If you’re refinancing and your home has appreciated in value, you may also be able to save by canceling your private mortgage insurance.

Comparing offers
One of the first things you should look at when comparing refinance offers is the interest rate. Even a slight difference in Florida mortgage rates can mean a lot of money over the life of a loan. Make sure you understand if the rate offered includes discount points, which is money you pay up front to lower your interest rate.

However, the interest rate isn’t the only rate to look for. Another good benchmark for comparing offers is their annual percentage rate (APR). This figure combines the interest costs and other fees charged by a lender over the life of the loan, expressing them as a yearly percentage.

Make sure to ask for an itemized list of what’s included in each APR calculation, so you know you’re making a fair comparison, as some lenders don’t include all of their fees in the calculation.

Other details matter too:

• Do the lock in terms vary?
• Is there a prepayment penalty?
• What are all the closing costs and fees?

Ask for a read a Good Faith Estimate (GFE) for each Florida home loan, and ask questions if something doesn’t make sense.

SOURCE: Lending Tree