Q: I have a fixed rate mortgage at 6.75%, and want to refinance at the lowest possible rates. I've been sitting on the fence waiting to see if rates will go down. Should I just go ahead and refinance?
A: You could save by refinancing now, or you could gamble and wait. If you want to lower your current mortgage rate, or have another compelling reason for refinancing, such as converting an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM), you could pay points up front and lock in your rate.This is called a "float down" and for a fee your lender will guaranty a lower rate should they drop before you close your loan. If rates go up, you are protected from increases.
Q: My wife and I want to buy our first home, and are shopping for a mortgage loan first. Our mortgage broker told us that we can get a lower mortgage rate if we pay points. What are points and is this legal?
A: A point is one percent of your mortgage amount. For example, if mortgage amount is $200,000, and you pay two points, you're paying $4,000 up front. Common reasons for paying points include locking in a lower interest rate (see #1 above), or getting a lower interest rate if your credit's in the tank. It usually makes sense to pay points only if you get enough benefit to recoup the extra costs with lower payments fairly quickly. Don't worry, the cops won't come calling.
Q: A guy at work got a cheap mortgage through a community homebuyer program. What is that and how do I apply?
A: Community homebuyer programs are typically sponsored by state and local agencies and provide down payment assistance and low mortgage rates on fixed rate home loans. Mortgage lenders and real estate professionals can clue you in.Most of these programs come with income and home price limitations--they are for those with modest earnings and needs.