Six Terms Consumers Refinancing Today Need to Know
Now that interest rates have started to make some major moves, a lot of homeowners who were once on the sidelines are deciding to get involved by seeking a refinance. If you’ve been out of the mortgage hunting game for a while, there may be a few different terms to look for.
- Points: Paying points helps to lower your interest rate. 1 point is usually considered to cost the equivalent of 1% of the total loan balance and lowers the overall interest rate charged by 1 basis point. (For instance: on a $100,000 loan, it would cost $1,000 to lower the interest rate on point.)
- “Refi”: Simply short for “refinance” this term is widely used in mortgage talk. When reading up on mortgages today, don’t be confused by this short hand.
- FRM & ARM: These two common terms stand for fixed (FRM) or adjustable (ARM) rate mortgages. Most mortgages processed are fixed rate, but there are many adjustable rate options to choose from. The main difference is that a fixed rate mortgage has a set interest rate (and therefore a set monthly payment) while an adjustable rate mortgage does not. Typically an ARM will have lower rates over current FRMs, but with the floating rate they tend to attract those who have short term goals for a home. If you plan on staying in your home for over 7 years, most recommend a fixed rate mortgage.
- Hard & Soft Pull Credit Checks: Did you know that there are two ways to look at your credit? One of these (called a hard pull) negatively affects your credit score while the other (known as a soft pull) does not. If you aren’t sure which type is being done to check your credit, ask!
Try the innovative Bills.com refinance calculator to learn if a mortgage refinance is cost effective for you and your unique circumstances.