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Refinancing?
Look Beyond Banks for the Lowest Rate
By Shel Franco
If the rate you're paying on your mortgage is above 5 percent, refinancing could mean a smaller monthly payment and save you tens of thousands of dollars in interest costs. To maximize your savings, you'll want to give some thought to how you refinance. Experts recommend that you do the following:
- Shop for the lowest interest rate available.
- Keep the payoff date on the refinancing the same as your original payoff date.
- Look for minimum closing costs and fees.
The biggest savings of all, however, can come by cutting out banks and other commercial lenders altogether, and instead have a family member fund all or a portion of your new mortgage. Commonly referred to as an intra-family mortgage, it's an increasingly popular way for homeowners to get the lowest possible rate. By turning to parents, grandparents, siblings or other relatives, you have the flexibility to set your own interest rate. In return, your loved one receives monthly payments and holds a lien on your property – just like a bank.
"On average, the interest rate for an intra-family mortgage is a least one full point lower than what any bank or other mortgage lender can offer," says Craig Venezia, vice president of marketing at CircleLending, a Cambridge, Mass.-based company that sets up and manages private loans and mortgages between relatives and friends. "Plus, the cost to set up an intra-family mortgage is typically a third of the cost of refinancing through a bank."
But intra-family mortgages don't just benefit the borrower. When structured properly, they can be financially lucrative for the person lending the money as well. The rate on an intra-family mortgage is typically higher than the rate paid on money market accounts, bank certificates of deposit (CDs) or other income-producing investment vehicles.