Tips on Refinancing Your Mortgage

If you've ever asked yourself if refinancing your home is a good idea the answer is: you should look into it. Not only could it give you more to live on month to month, but it could also save you thousands on your mortgage in the long run.

A recent survey produced some disturbing results on the state of mortgages in the United States. The report showed that more than half of homeowners are either paying too much for their mortgages or are locked into mortgages that are clearly unsuitable for their needs, income level or financial goals. Research also indicates that the average percentage of someone's income that goes to mortgage payments has risen 12.6 percent from nine years ago, which is not leaving today's homeowners much left to live on for themselves and families.

If you don't relate to these circumstances, there are plenty of other reasons why refinancing could still be in your best interest. Things have probably changed in your life since you signed your original home loan. What were your priorities then might not be what's most important to you now. Refinancing allows you to change the terms of your mortgage, to suit your lifestyle now.

Refinancing your mortgage can benefit you in many ways, like saving money, increasing cash flow, reducing the time of your mortgage and being able to lock in the low interests of today (4.375 percent, at some banks). But there are certain facts you need to know before deciding on refinancing.

The biggest danger of mortgage refinancing comes from a lack of awareness. If you're not aware of what you want from the refinancing, and the pros and cons of the deal, then you are open to being taken advantage of by unethical mortgage brokers. Mortgage refinancing is not for the uninformed.

You need to pick your broker carefully, since he or she is the one who will figure out the best option for you when it comes to the many different loans and lenders out there. Your bank won't do this for you without having bias in favor of their own loan products.

Make sure the broker provides you with the annual percentage rate (APR) when looking at or comparing any home loan products. The APR shows you the real cost of a home loan by taking into consideration all the foreseeable fees and charges associated with the loan. Then you can easily compare home loan products.

Also, make sure the broker you're dealing with has the proper membership or credentials and is qualified to refinance home mortgages. In the United States the American Association of Residential Mortgage Regulators (AARMR) and National Association of Mortgage Brokers (NAMB) are two such companies.

After choosing your broker, you want to look at the home loan types. There are hundreds of home loan products on the market; all with different fees, interest rates and features.

Now the next question should be, are there taxes on these products? The answer is: yes.

Under New York law, a mortgage recording tax must be paid when a new mortgage is created and recorded on a property. The amount of the tax varies, depending on whether the property is commercial property or a one-, two- or three-family home; where the property is located; and how large the mortgage is. If the property is a one, two or three family home, the law requires the lender to contribute toward the payment of the tax.

In Westchester County the mortgage tax is $1.30 per $100 mortgage. So on a refinance of a $385,000 mortgage on a single family home in Larchmont-Mamaroneck, the mortgage recording tax would be $5,005 for the homeowner. In many cases, however, a homeowner may be able to avoid the mortgage recording tax on a refinance if the original lender and the new lender cooperate.

Instead of satisfying the old mortgage from the proceeds of the new mortgage, the owner may be able to arrange for the original lender to assign or transfer the remaining balance on the old mortgage to the new lender. The new lender and the owner would then sign an agreement to recast the assigned mortgage to reflect the new mortgage terms. Because the old mortgage is not being satisfied, but simply assigned, no new mortgage debt is created. Therefore, no recording tax would apply. This process is more paper intensive than a simple mortgage satisfaction, but the savings can be significant.