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Refinancing and APRs

Last week five national banks allocated $35 billion to help people who are under water refinance their home mortgages. There are approximately 11 million or one out of five homeowners in this situation. The banks willingness to assist distressed homeowners is a start, but it is not a total solution given the scope of the problem.

Reportedly, there are 14 million homeowners who can save by lowering their mortgage interest rates by refinancing. Creditsesame.com reports that these credit-worthy borrowers, on average, could save $471 per month or $56,520 over a 10-year period. Be mindful that banks reserve the lowest interest rates (i.e. 4 %) for homeowners with the best credit rating (i.e. 740). It is important that homeowners carefully review their credit reports as over 70% of them can have errors.

Another requirement for refinancing is that the homeowner have at least 20 % equity in their home of the current appraised value.

It makes sense, for homeowners to subtract the total costs of refinancing from the projected savings of refinancing. It generally makes sense to consider refinancing if a homeowner is going to be in the home for a minimum of three years. Closing costs have increased approximately 9% year over year. In the New York area, closing costs are approximately $6,183 (source: Bankrate.com).

There is a fair amount of paperwork involved in refinancing (i.e. two years of tax returns, pay and asset statements) and it can take approximately 60 days to refinance.

What is an APR?

The Annual Percentage Rate (APR) factors in particular closing costs and fees associated with a mortgage loan; and spreads this amount over the life of the loan along with the note’s rate. Fees, typically, included in the APR are: pre-paid interest, origination fees or points, loan process/underwriting fees and private mortgage insurance. Fees, typically, excluded from APR calculation are: transfer taxes, title, escrow, attorney notary, document preparation, home inspection, recording, credit and appraisal fees.

It is important to compare bank APR’s, however, be aware that there calculation can differ.

Further, APR’s do not factor in pre-payments, moving or refinancing. APR’s based on an adjustable rate and balloon mortgages can be confusing and involve uncertainty as compared to those tied to a fixed interest rate. Why? There is uncertainty as to what rates of interest will be in the future with adjustable and balloon mortgages. So comparing APR’s are a start, but a professional mortgage broker should assist a buyer and homeowner in selecting which bank loan works for their needs.

 

Mary Ann Clark is a Realtor with Coldwell Banker located at 177 West Putnam Ave. Questions or comments can be emailed to This e-mail address is being protected from spambots. You need JavaScript enabled to view it or you can reach her directly at 203-249-2244.



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Did I Say That?

I just noticed that the guys my daughters are dating — two of whom are about to become my sons-in-law if I can afford the weddings — have that gruff facial stubble you see in men’s magazines, where the fellows look like Navy SEALS on commando raids or linebackers for the New York Giants.

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Growing Up Greenwich

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To keep the mood light until graduation, we have two rehearsals: One with just the Upper School students and the second with the entire school. These rehearsals are used not only to make sure everyone knows where they are supposed to be, but to also take advantage of the opportunity to have some fun before the seriousness of graduation. During the rehearsals, the senior class dances down the aisle running the length of the tent, wearing old components of plaid uniforms and plenty of red. One of last year’s seniors salsa danced down the aisle on which she would solemnly walk to receive her diploma less than 24 hours later. Poking a little bit of fun at the very structured, yet special, program of events on Graduation Day, the senior class is able to celebrate with their fellow students one more time before the entire tent fills with adoring parents and extended family.

Market Watch

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Dear Larry,

I am a heavy user of Outlook but after years of use, my Inbox is out of control, and the program as a whole is getting very slow. Is there anything I can do to tame it? —F.O.

Dear F.O.,

In my last column, I discussed the use of Outlook folders to unburden the Inbox. This week, I’ll talk about using mail rules to redirect messages to folders.

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The United States now has a “split rating” — meaning inconsistent — from the top agencies.

There are two chief criteria that lenders consider in making a loan. The first is ability to pay. The second is willingness. No one questions the ability of the United States to pay its debts at this time. However, the circus in the House of Representatives raised the question of whether we are willing to pay, and long term, whether paralysis in our political institutions will undercut our ability to pay. As S&P stated, the downgrade reflected its view that “the effectiveness, stability, and predictability of American policy making” have weakened at a time when we face “ongoing fiscal and economic challenges.”

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