Refinancing on Long Island can be a complex task. Information abounds concerning many of the different components involved in a refinance, but so much disparate information can sometimes make the process seem more confusing. We have whittled down the most common questions and concerns from our respected clients and assembled them together as a helpful guide to help simpify and clarify the refi process so that you can make informed decisions for your financial future.
Is it too late to refinance my home?
Almost every single homeowner you know has refinanced their home loan in the last several years. Some more than once. This situation often begs the question: Is it too late to refinance?
The short answer is: absolutely not. But soon it might be.
Here’s why: The recent market correction reinforced the notion that it’s probably too early for the federal reserve to raise rates, as they were expected to do at the end of September. The can got kicked further down the road as previous estimates targeted a fed rate increase months ago. Previous economic estimates – as far back as fall 2014 – had supposed that the fed would have acted by now, but a soft economy and lower than expected inflationary pressure has delayed significant rate increases. Just a few months ago, a September rate hike seemed inevitable. As many members of the fed reserve board have been suggesting a need for it.
"The stimulus plan included keeping rates artificially low," says Adam DeMario, managing director of Contour Mortgage on Long Island. "An increase always seemed imminent, but the economic indicators – the results of monitoring the most recent data - never confirmed that it was time to pull the trigger to support a fed rate hike."
They are looking for reason to raise rates. However, when China devalued its currency, the market corrected to show that this economy will not support a rate hike. "How the fed will bring us back to a normal rate environment has the power to derail the economy and can affect stable growth and a more solid economy," warns Daniel Pisani, Contour Mortgage's VP of Sales.
Now we have this last unexpected opportunity to refinance.
Bottom line: the time is now. It could last several months. For the next several years, the rates will be in a lower, so to maximize your savings, now is the time to do it.
What are some of the benefits of refinancing?
The benefits of refinancing are manifold. The 2 types of refis are “rate/term” (borrowing the amount owed and closing costs if they want) and “cash-out”, which is the amount owed, extra money desired and closing costs.
A cash-out refinance allows you to lower the interest rate on your loan, while accessing cash based on the equity of your home to use to invest, to pay off high-interest credit card bills, to eliminate a car loan or other debt. Another one of the benefits of refinancing, besides negotiating a lower interest rate over the life of your home loan, is that you get a month’s reprieve on your mortgage payment when you close.
You’re not getting away with a free month – you still have to make 360 payments on a 30 year mortgage because banks aren’t allowed to charge you interest for something you haven’t used yet. The bank will charge you Arrears.
When closing on a home purchase or refinance, you skip a full calendar month before your first mortgage payment is due. For those refinancing, that month break without having to make a payment is looked as a great way to offset a few thousand dollars of closing costs. You're not getting that month free - you still have 360 payments due on a 30 year mortgage - the clock just starts after you've been in the house for a full calendar month.
The reason? Even though the real estate taxes and homeowners insurance are paid upfront, the bank can't charge you interest on money you haven't "used" yet. So if you close on a mortgage on September 25th, you'll pay "per diem" interest through the end of September, live in the house for October and on November 1st,, pay your first mortgage payment. You pay your mortgage "in arrears" - for the month you just lived there. In other words, when you pay your rent on January 1st, it covers January. When you pay your mortgage on January 1st, it's paying the bank back for December.
A refinance should take between 45 and 60 days. The documents needed could be different depending on some factors (passive/investment income, social security, alimony child support income, etc), but the very basic items required are: two years of w2's, one month paystubs, and two months asset statements (all pages). There are many other documentation requirements possible, depending on your unique financial situation.