real estate finance - full book (500 pgs)

In any 12month period during those five years the

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Unformatted text preview: idual who has not saved money is forced to pay a higher price for goods purchased and real estate is no exception.” (California Department of Real Estate, Reference Book) Borrowers often are faced a common question “Should I refinance or not refinance my existing mortgage?”. And if upon decided to refinance, borrowers face yet another task on choosing a right lender. This chapter will review the pros and cons on refinance and what kind of questions a borrower should ask during refinance. REASONS TO REFINANCE INTEREST RATE REDUCTION One of the best reasons to replace an existing loan with a new one is to obtain a better interest rate. If market interest rates are down, an existing loan at a higher rate can be a considerable disadvantage. A simple chart showing the payments on a loan of $100,000 at different interest rates shows that a change in interest rate can result in a significant Dynasty School (www.dynastySchool.com) 15-1 REAL ESTATE FINANCE change in the monthly payment, with the change being slightly greater at higher interest rates. Monthly Payments on a Thirty Year $100,000 Loan at Different Interest Rates Interest Rate 8% 9% 10% 11% 12% 13% 14% 15% 16% Monthly Payment $733.77 $804.63 $877.58 $952.33 $1,028.62 $1,106.20 $1,184.88 $1,264.45 $1,344.76 Increase over 1% Lower $ 70.86 $ 72.95 $ 74.75 $ 76.29 $ 77.58 $ 78.68 $ 79.57 $ 80.31 Increase over 2% Lower $ 143.81 $ 147.70 $ 151.04 $ 153.87 $ 156.26 $ 158.25 $ 159.88 2% RULE OF THUMB Many advisors proffer the general rule that it pays to refinance when the interest rate will drop by at least two points (2%) and the cost of refinancing can be recaptured through savings in monthly payments within 36 months. Using the preceding chart in applying this rule of thumb, the borrower should consider refinancing this $100,000 loan to get a reduction from 13% to 11% if the loan costs did not exceed approximately $5,500. Since the costs of refinancing vary among lenders, the property owner considering refinancing should shop several lenders. Many real estate brokers make a special effort to rem...
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