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Refinancing Your Mortgage

One of the best benefits of owning vs. renting is that you can build equity in your home and potentially take cash out by refinancing your loan.

Other reasons to refi are to get a lower mortgage rate, shorten the term of the loan, or to change from an adjustable rate mortgage to a fixed mortgage.

What’s old is new again

When you decide to refinance, you’re actually applying for a new loan. Whether you’re working with your original lender or a new lender, you’ll need to provide documentation and verification of your income, assets, debt-to-income ratio, credit profile and job history. You must qualify for the loan, plus your property must appraise for enough value to support the loan.

Refinancing has its costs

You’re likely refinancing to save money, but you can’t lose track of the fact that you’ll need to pay loan closing costs of 2 percent to 4 percent. That figures out to $6,000 to $12,000 on a $300,000 loan or $10,000 to $20,000 on a $500,000 loan.

Be sure to do some simple math to determine how long it will take you to recoup the closing costs on your new loan. If, for example, your refi closing costs are $5,000 and you’re saving $250 on your monthly mortgage bill, it will take you 20 months before you recover your closing costs and truly begin to save money.

Also, be wary if your lender advertises “no-cost” refinancing. You’ll end up paying through a higher interest rate, a larger loan balance or the payment of discount points.

Co-ops are a special beast

Refinancing a co-op is not quite as simple as refinancing a single-family home. For starters, your co-op board must approve your refi. Getting that approval is more likely if your new loan is at a lower interest rate than your old one and you won’t be increasing your total debt load. Co-op experts say most boards won’t even consider your application if you owe the building any money, so make sure your maintenance fees, fines and other fees are paid up long before inquiring.

Condos are yet another beast

Remember when you got your original loan? You had to qualify and your condo association had to qualify. There are special condo refinancing regulations regarding the number of owner-occupied units in the building, the value of the unit and the ratio of commercial space to total square footage in a building.

To find out if you and your condo qualify for refinancing, check with local lenders, then shop around for lenders who are willing to work with you. Many banks are refusing to refinance condos, even when they underwrote the original mortgage.

Added bonus: Lower title insurance rates

As if low mortgage rates weren’t temptation enough, NYC has made the lure of refinancing even sweeter with news that it’s decreasing title insurance rates.

The New York Department of Financial Services announced that it’s slashing title insurance rates for consumers who refinance their mortgages. The amount by which your title insurance costs drop varies according to how long you’ve had your loan and if you’re refinancing with your original lender.

A mortgage that’s 10 years old or older and refinanced with the original lender, for instance, could lower your title insurance rate by 65 percent. Title insurance for a refinanced loan less than 10 years old will be 30 percent cheaper if you use the same lender or 15 percent lower if you use a new lender.

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