Many Arizona property owners are turning to AZ refinance to obtain a reduced interest rate on their home mortgage loan. While refinancing mortgages can result in lower monthly payments, many homeowners fail to realize the costs associated with obtaining a new loan.
Before entering into AZ refinance, borrowers should take time to review their current mortgage contract. Many banks offer borrowers reduced interest if they agree to a prepayment clause. In most cases, prepayment penalties are assessed if borrowers refinance or sell the property within the first five years. Others reduce the penalty by 1-percent each year
The only way to know if mortgage prepayment penalties are assessed is to review the Truth in Lending statement attached to the loan. Borrowers with FHA or VA loans or those who obtained financing through a chartered credit union are not subjected to mortgage prepayment penalties.
Prepayment penalties can range between 2- and 4-percent of the loan value. If borrowers refinance mortgages with a property value of 100,000 and a 2-percent penalty, they will incur refinance fees in the amount of $2,000.
In addition to prepayment penalties, lenders often require borrowers to obtain property appraisals and home inspections. Most lenders allow borrowers to obtain a broker price opinion which is less costly than a traditional property appraisal.
Banks require appraisals in order to prevent loaning more money than the property is worth. Home values have dropped by as much as 40-percent in many Arizona cities. If the property value has dropped below the outstanding balance due on the original loan, banks will not allow borrowers to refinance.
Another consideration of AZ refinance is credit rating. Borrowers should obtain a current copy of their credit report and FICO score prior to submitting a loan application. After the banking crisis, mortgage providers tightened lending criteria. Today, most lenders require borrowers to have a fico score of 720 or higher before granting loan approval.
Lenders assess interest based on borrowers' credit scores. The higher the credit score, the lower the rate of interest. Many people fail to realize that poor credit costs them money when trying to finance any purchase. Interest adds thousands of dollars to the cost of the home. Therefore, borrowers with poor credit should enter into some type of credit repair to boost their fico score before attempting to refinance mortgages.
Home equity also plays a role in mortgage refinancing. Arizona lenders usually require borrowers to have a minimum of 5-percent home equity before refinancing can occur. Home equity is calculated by subtracting appraised property value from the outstanding loan balance. For example, a homeowner owes $150,000 against property valued at $225,000. Their home equity would be $75,000.
The average cost of mortgage refinancing hovers between $3500 and $6000. Much depends on if prepayment penalties are assessed, home value, borrowers' credit history, and current interest rates.
Borrowers can recover refinance rates within a year or two by obtaining a substantially reduced rate of interest. However, the initial cost can prevent many homeowners from obtaining a new mortgage loan.
Before applying for AZ refinance, we encourage you to browse our mortgage refi article library. We offer information and resources to help borrowers understand the advantages and disadvantage of refinancing mortgages, along with tips for finding the best refinance rates.
Published on June 18, 2010 at 11:12 AM
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