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GCFLASH
Hot Off the Press!
Tuesday, February 19, 2008 - Edition #442
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Weekly Spotlight
GCF makes financial planning easy with the wide range of calculators available on our Web site. Whether you're deciding between a purchase or lease, planning for education or retirement, paying off a credit card or estimating future value of your savings, we have a calculator to simplify your task. Find over 60 financial calculators here.
1st Flash:
THINKING ABOUT A MORTGAGE REFINANCE? START HERE.
There have been a lot of whispers out there lately that, with interest rates dropping, it may be a good time to refinance your mortgage. There are many reasons why someone might consider refinancing. Shortening the length of your loan, obtaining cash out, eliminating Private Mortgage Insurance (PMI) or lowering your monthly payments are the most common reasons. Unfortunately, the decision whether to refinance or not to refinance is not always easy to make. There are a lot of factors you should consider before you decide. The old "rule of thumb" used to be that you should consider refinancing if you are going to lower your interest rate by at least a set percentage. That percentage has changed over the years. It used to be 2%, then 1%. Nowadays, however, what you should look at when deciding whether to refinance is not only the interest rate, but also the annual percentage rate (APR), any early closure fees/penalties that you will have to pay on your current mortgage, and the amount of time it will take you to make up in monthly savings what you had to pay out in fees for the new mortgage. Refinancing can be just as expensive as your original mortgage. Occasionally, a title company may offer you a discount on the new policy. But other than that, the fees, expenses, and process will be very similar. First, research your current mortgage. Find out if you will have to pay any type of early closure and/or prepayment penalty. A typical penalty can be 2-3% or more of the loan amount. Refinancing a $250,000 mortgage with a 3% penalty will cost you an additional $7,500 in closing costs. Second, shop around for the best rate and closing cost combination you can find, but remember that it is important to compare apples to apples. By that, I mean that you should only compare one lender's 30-year mortgage rate with 0 points to another lender's 30-year mortgage rate with 0 points. Comparing one lender's 30-year rate with 0 points to another lender's 20-year rate with 1 point will not give you an accurate picture. Generally, if you are comparing like products, a look at the APR will give you an indication of which is the better deal. For more information on comparing APR's, see today's 2nd Flash article. Lastly, calculate how long it will take you to make up in savings what you paid out in costs. If you do not plan to stay in your house long enough to recoup your costs, it is probably not the right time to refinance.
Deciding whether or not to refinance is ultimately your decision. If you are unsure if refinancing is right for you, seek out a financial advisor or mortgage professional for assistance. The loan department at GCF would be glad to answer any questions you might have. Contact us at 856-589-6600, ext. 353, 354, or 349. 2nd Flash:
APR: COMPARING APPLES TO ORANGES?
Dropping interest rates have fueled a surge in mortgage refinances. And it couldn't have happened at a better time than this as homeowners scramble to secure a fixed rate before their adjustable rate resets. Now the looming question is how to compare mortgage products to select the best one for you. The federal Truth in Lending Act requires lenders to disclose the Annual Percentage Rate (APR) as a common denominator when comparing loan offers. But using strictly that number may be costly. The APR is the effective interest rate on a loan. It takes into consideration one-time fees to reflect the total cost of credit expressed as an annual percentage of the amount of credit offered. However, what is considered to be a one-time fee may differ from lender to lender. For example, attorney's fees are considered a pass-through cost since they are a separate transaction and not a part of the loan. Appraisal, home inspection, credit report, escrow, notary or title fees are also considered separate transactions. Lenders do not factor these fees in when calculating the cost of lending. Application fees and credit life insurance are included by some lenders, but not by all. Fees that are generally represented include:
Even lenders using identical data may arrive at different APRs. The calculation is complex and dependent on software packages to crunch the numbers. While the difference in software packages is minimal, it's enough to prevent you from making identical comparisons. The APR is a good starting point, but best way to compare loans is through the good faith estimate. This form is an itemized list of fees and costs associated with the loan. It details loan fees, fees to be paid in advance, reserves, title charges, government charges and any additional charges you will incur. It's only an estimate, final closing costs may vary. But it will give you a better idea of what to expect, and allow you to more accurately calculate than using the APR alone. Our Web site's Home Finance calculators can help with the math. And our mortgage professionals are happy to answer any of your questions. Call them at 856-589-6600, ext. 353, 354, or 349. Financial News
As the time comes to prepare your taxes, it's a good time to evaluate your overall financial position. Some areas to look at are the amount of your tax liability or refund, retirement savings, emergency funds, and other savings opportunities. Many people want a big tax refund to provide the cash for big spending items like vacations, home improvements, or paying down debt. However, remember that a tax refund is an interest-free loan to the government. A $3,000 refund from the IRS could have earned you $60 in a 4% savings account over the course of a year. If you can deposit the $57 weekly into a savings account over the year, you will pay yourself the interest (assuming a weekly payroll.) The moral of the story is evaluate how much in taxes you are having withheld or paying now, at the beginning of a new year. Another area to review is retirement savings. If you are still working, a traditional rule of thumb is to set aside 10% of your earnings each year. If you are behind and are able, you may want to speed that up. The key to savings is to remember that the earnings compound. For example, if you save $3000 for 15 years at 5% per year, you will have $64,736 saved or $19,736 in interest. To more accurately calculate what you need to save, you would want to estimated how much you will need to retire. There are some nice calculators on our website under tools to help you in. (Contact your financial advisor for added information.) Many people spend what they make every month, leaving them at risk if they loose their job. As a general rule, everyone should have 3 to 6 months of emergency funds available to them. This should be one of the first areas of savings to build up. Consider taking a portion of your raise each year and putting that into savings of some sort. If your employer offers a defined contribution plan, like a 401k where they match your contribution, make sure that you are taking full advantage of that! The employer contribution is additional compensation that you are giving away if you don't. An automatic deduction from your pay each payday will most often not be missed, and will add-up fast! This can be directed to a retirement account or other savings account for another purpose. Today's National Market Rates
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In This Issue... 1st Flash: THINKING ABOUT A MORTGAGE REFINANCE? START HERE. 2nd Flash: APR: COMPARING APPLES TO ORANGES? Today's Market Rates On the World Wide Web Tip of the Week Financial News Past issues of GCFlash: February 12, 2008 Edition #441 February 5, 2008 Edition #440 January 29, 2008 Edition #439 January 22, 2008 Edition #438 Looking for articles from a past issue of GCFlash not listed above? Find them in our Knowledge Base!
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