Loans

Mortgage refinancing can give you some financial breating room if you are looking to lower your monthly expenses. There are a number of reasons why homeowners refinance their mortgages: to lock in a lower fixed rate on an adjustable loan just prior to an interest rate reset, to tap into home equity to finance home improvements or a consumer loan payoff (a good income tax strategy) or to consolidate two mortgages into a single loan.

Mortgage refinancing is an excellent financial strategy provided you intend to remain in your current home for the long term. You will essentially be wasting your money if you intend to sell your home fairly soon, as if takes close to two years to recover the associated closing costs. Your true savings begin when the aggregate amount of your monthly savings equals the amount of your closing costs.

A mortgage refinancing loan transaction follows the same progression as did the loan you took out to purchase your home. You will also be responsible for the same type of closing costs: loan application fees, an update and review of the title to your home, the title insurance premium, home appraisal and document preparation fees, attorney fees, and the mortgage tax, recording and filing fees imposed by your county clerk, not to mention attorneys fees. Even if you do not hire your own attorney, your lender will, and it will pass the fees along to you. These costs can either be paid out of pocket or tacked onto your mortgage. Either way, you will not start realizing true savings on your monthly expenses until you have paid yourself back the aggregate amount of these costs.

Also think about whether your purpose for mortgage refinancing is to lower your monthly payment by reducing interest or to raise your monthly payment in order to pay principal down faster. The first option brings immediate results in the form of monthly savings but will end up costing you more in interest over the life of the loan; the second pays your loan off sooner and costs less in overall interest. It all depends on your long term financial strategy.

It would be to your great advantage to avoid the mistakes of the late 2000s by reading the small print before committing to a mortgage refinancing loan. Too many people were seduced by the prospect of owning more home than they could afford (and preyed upon by unscrupulous lenders), and suffered dire consequences as a result. Do not allow yourself to fall prey to the same tactics.

How do you know when the time is right to refinance your house? Deciding when to refinance may seem more like an art than a science, but it is just a matter of numbers. Walk through the steps, and at the end you will know whether or not now is the time for you to refinance.

First, what interest rate are you likely to be offered? A good credit score and low federal interest rates will both act to lower your potential interest rate. Although you cannot know your exact interest rate until the lending bank evaluates you and makes an offer, online sources can give you an excellent idea of the range in which your interest rate will fall.

When you know your likely interest rate, decide how long you want the term of the mortgage to be, and use an online mortgage calculator to work out how much your monthly payments will be after the refinance. (Ideally the term of your new mortgage will be equal to the amount of time left on your old mortgage. Otherwise, a longer term will let interest compound longer, adding extra money to the total and potentially offsetting the savings you would have seen from a refinance.) Also work out the likely difference between your monthly payments after you refinance and the amount you currently pay per month.

Then calculate how much a refinance will cost you in extra fees and taxes. These “hidden” costs add up: A basic refinance frequently costs $2000 to $3000, and could cost even more.

When you know exactly how much refinancing will cost, divide it by the difference between your current monthly payments and your future monthly payments. The result is the number of months it will take you to break even after the refinance. For example, if you pay $1200 right now, you would pay $1000 per month after the refinance, and refinancing would cost $2200 in taxes and fees, it will take you 11 months to break even. After that, you would start seeing savings from your new mortgage. Do you plan to stay in your house long enough to garner noticeable savings from a refinanced mortgage? If the answer is no, then you should avoid the stress of refinancing and keep your old mortgage. However, if the answer is yes, then now is the time to refinance.

As you can see, deciding when to refinance is a simple matter of doing the numbers. None of the variables are set until you receive a formal loan offer from your bank, but you should be able to make a good estimate of what your bank will offer you. Apply these steps to choose when to refinance, and you and your family will enjoy greater financial security for years to come.

Are you about to start filling out forms to get a home mortgage? Curious about what will happen next? Once you know how large a home mortgage you want and you have found a mortgage agent, this is what will happen:

* Gather together all the paperwork and other documents you will need. Collect not only your tax information for the last few years, but information on any major assets you own, such as your current home mortgage, car, stock portfolio, and 401K.

* Call your mortgage agent to give them the necessary information and give them permission to obtain your credit report.

* Have a meeting with your home mortgage agent. During the meeting, the agent will show you the report he or she has written on you, and you will have a chance to correct mistakes, add additional information, and supply any missing paperwork. You should also discuss the mortgage in depth with your agent, clarifying anything at all that you don’t understand. Don’t hold back out of fear of wasting your agent’s time. Helping you to get the right home mortgage is his or her job, so ask all the questions you like.

* The agent goes over your application again. He or she may ask you for more supporting documents or more details to complete the home mortgage application paperwork.

* The underwriter decides whether or not to approve your application, based on the information the agent has submitted on your behalf. The underwriter may be a person, or it may be a computer program using advanced financial algorithms to automate and speed up the approval process.

* Clear any conditions. That is to say, answer any questions the underwriter asks (”conditions”) in order to make a decision about your loan. You may need to obtain information from your employer or bank, explain why you missed bill payments or why you have gaps in your employment history, finish paying accounts that have gone into collection, or straighten out tax liens or other problems with your current home mortgage. This is the longest part of the mortgage approval process because the third parties involved, such as your employer or your bank, are usually not in any hurry to get the information back to the agency.

* Meet with your agent to finalize your mortgage. The agent will give you a copy of the final version of your home mortgage. Compare it closely to the terms you were promised and the cost estimates you were given. If you find any terms that do not match what you expected, request that the home mortgage be corrected at once. Sign nothing until the home mortgage you are offered on paper is identical to the one you were told to expect. Remember: Even if the contract you sign isn’t what you thought it would be, it’s still legally binding. Sign only if the terms that are spelled out in the contract are exactly what you are prepared to commit to.

If you have been holding back on applying for a home mortgage, the recent drop in interest rates may mean that now is the time to act. If you are a first time home buyer, understanding the kinds of home mortgage available to you may be difficult. Here is a guide to the two most common types of home mortgage, fixed rate and adjustable rate mortgages.

The interest rate and monthly payment amount for fixed rate mortgages do not change over the course of the loan. Whatever the rate when you close the loan, that is the rate you will have until you sell the property, refinance, or pay off the home mortgage completely. Lenders usually charge marginally higher interest rates for fixed rate home mortgages as security against times when interest rates rise. This slightly higher interest rate is a premium you pay for the security of a fixed rate.

On the other hand, the interest rate for adjustable rate mortgages rises and falls with the prime rate. When the prime rate is high, your mortgage interest rate increases; when the prime rate is low, your mortgage rate drops. Your monthly payments rise and fall accordingly. Because this kind of mortgage is less risky for banks, they set the interest rates for adjustable rate mortgages slightly lower than they do for fixed rate mortgages. They also offer an introductory period, usually three to seven years, during which the interest rate on your home mortgage is locked at an attractively low rate.

Which one is best for you? Do not immediately leap at the lower interest rates offered by adjustable rate mortgages. The length of time you plan to live in your house is a factor. So is the possibility of interest rates rising or falling during your ownership. If interest rates are at a record high when you buy your house, taking out an adjustable rate mortgage is a sensible idea, since your rate is likely to improve. If you plan to resell your house within the grace period of an adjustable rate mortgage, then opting for an adjustable rate mortgage would be an economical way to get a low cost, short term loan. However, if you plan to keep your house for longer than the introductory period, and interest rates are low, a fixed rate mortgage may be the best choice because you can “lock in” the prevailing low interest rate.

Take into account not only your own finances, but the current economic climate, when deciding what kind of home mortgage is right for you. Both types of home mortgage loan are excellent ideas at the right time.

Is right now a good time for you to refinance? Mortgage interest rates are almost as low as they can go in June 2009. It is tempting to leap at the chance for a new mortgage with a new low interest rate. Follow the steps below to determine whether the time is right for you to refinance.

* Get as wide a range of quotes as possible from legitimate lenders. Select the ones with the lowest interest rates and total fees.

* Find a mortgage calculator and use it to work out what your monthly payment and total savings would be for each offer.

* Work out the break even point. That is the date on which the savings you gain from a lower interest rate equal the amount you will spend up front on mortgage fees.

* When do you plan to sell the house? If the break even point falls before the date on which you plan to sell the house, then you will save money, and refinancing is a good idea. However, you will lose money if the break even point falls after the date when you plan to resell, so you should not refinance. Mortgage fees are nothing to laugh at, coming to at least $2,000 to $3,000 for an average refinance. Mortgage refinancing will not save you money, no matter how low your new interest rate is, if you lose more to refinancing fees than you gain from lowering your interest rate.

This method works whether you want to save money on your total mortgage payment, or whether you want to lower your monthly payment and do not mind paying more in the long run. If you want to lower your total mortgage payment via a refinance, mortgage break even points are important because they determine whether the real savings will be lower if you refinance. Mortgage break even points also tell you whether you would be better off reducing your monthly payment, or whether you would affect your wallet less by using the money you would have put toward refinancing fees to pay off part of your current mortgage instead. Otherwise, paying refinancing fees may be like throwing money down a hole.

Knowing when to refinance mortgage loans is essential to success in the real estate market. It’s painfully easy and common to misjudge the timing or a refinance and lose several thousand dollars (or more) on the deal. Low interest rates often mean the time is right to refinance mortgage loans, but make certain the situation is ideal for you personally before you sign any agreements.

It is not news to anyone that the economic recession of 2008 and 2009 has affected all segments of the financial industry. Lending institutions have frozen or severely restricted access to credit, including mortgage loans. Millions of homeowners suddenly and rapidly lost equity in their properties from plunging home values. The recent economic stimulus package introduced by the Obama Administration has
brought about a thaw in the credit freeze, however, encouraging lenders to begin offering mortgage loans to responsible borrowers at reasonable interest rates, with strict qualification requirements.

One mortgage product that has become more popular since the introduction of the stimulus package is reverse mortgage loans. These types of mortgage loans have become more attractive to their targeted senior citizen demographic with their increase in allowable loan amounts and decrease in associated closing costs. Benefits of reverse mortgage loans include no prepayment penalties, no tax due on the cash advance, and no title transfer to the lending institution. These mortgage loans allow the homeowner to borrow against their home equity without restrictions on use, whether it be to cover medical or living expenses.

Homeowners currently paying off existing mortgage loans have no reason for concern over their loan terms and loan safety in these uncertain economic times. Loan terms and loan security will not change so long as the regular monthly payments are kept current. For those wishing to take out new mortgage loans, the low interest rates currently being offered as part of the economic stimulus are too good to pass up.

Whichever of the mortgage loans you decide on, you must still practice restraint in settling on a loan amount that you can realistically afford. Looking back at how the recent subprime mortgage loans crisis began, borrowers have to be careful not to be entrapped by the same seductions offered by aggressive and unscrupulous lenders. Determine and do not waiver from the highest mortgage payment your budget will allow, no matter how much the loan officer says you qualify for. Taking on more debt than you can afford will only lead you down the road to financial disaster, no matter how attractive that big house might be. You could lose your home and destroy your credit rating by making the mistake of going after more house than you can afford.

Mortgage loans provide a great way to dip your toes back into financial waters. But to avoid a repeat of the recent mortgage and housing market crash, it is imperative to keep your head on straight to avoid disaster.

Home mortgage interest rates the third week of March were still hovering around 5 percent. The Federal Reserve made a decision to keep rates low and many analysts expect them to stay fairly low for the remainder of 2009. Given the shaky state of the economy and the increase in unemployment, low rates have been the one shining light for those considering buying a new home with a home mortgage and, particularly, for those wishing to refinance. Lenders, however, have adopted much more stringent lending requirements since the credit crisis and decline of the real estate market. A better credit score, cleaner credit history and more money down are now required for most loans. Because of those requirements, less people who apply for a home mortgage are actually approved. Those who currently own homes and apply for refinancing must meet the same standards. Many lenders are now requiring at least 20 percent equity and a credit score of 700 or higher to qualify. Having sufficient equity to qualify has been a challenge for homeowners in markets that experienced a significant drop in values. Part of the new stimulus plan introduced by the Obama administration is designed to help those who keep up with their mortgage payments, but whose home values have dropped so much that they now have little or no equity. Consumers who are under water with the mortgage, however, will not qualify to refinance with the program. A minimum of 5 percent is required in equity to apply for refinancing.

Some consumers think the home mortgage rates will decrease even more, so will wait to refinance until then. They may be right and snag an even lower rate in the future, or wish they would have grabbed the lower rates. As home values are predicted to continue to fall, homeowners who wait take on the risk that the equity in their homes may decrease if the values decline more. Those who are looking into home mortgage refinancing now with the low rates should make sure the benefits outweigh the costs for their particular situation before jumping in. Knowing all the costs of the refinancing is essential. Many people simply look at the savings differential between their interest rate and the new lower rate and forget to consider the actual costs of refinancing. For those who will be able to break even and begin to reap the benefits of the lower monthly payments before they plan to sell their house, refinancing is generally a sound financial decision.

Obtaining qualification from the lender is the first step necessary when applying for a home loan. Some potential applicants may feel uncomfortable about this step because they don’t fully understand what qualification for a home loan means. Qualification is the process lenders use to decide whether, and how much, to lend to an applicant. By understanding the process, you will be in a better position to qualify for the amount you need for your home loan.

EMPLOYMENT AND INCOME

Lenders look for evidence that you will be likely and able to repay your home loan. A consistent, dependable source of income is important. A minimum of two years with the same employer is commonly desired. If not, how long did you work for your previous employer? Have you recently changed jobs? Can you demonstrate your reasons were responsible and that the employment is stable? Expect that the lender will contact your employer to confirm your history. The lender will look for evidence that you are responsible and have resources to repay the loan.

You will also need to provide proof of the total household income you want held accountable against the loan, as well as your outstanding debt and monthly expenses. By comparing what you earn against what you owe, the lender will be able to evaluate your ability to meet your home loan payments.

CREDIT WORTHINESS

Your credit report will be reviewed to evaluate the risk that you will make your mortgage payments regularly. Most importantly, lenders look for a history of consistent payments made on time. They also check that you use credit responsibly, without regularly approaching the maximum levels available.

WHAT CAN YOU DO TO IMPROVE YOUR CHANCES?

Start planning well in advance to prepare for home ownership. Try to maintain your time in job for a minimum of two years before applying for home loan qualification. Know what is in your credit reports from the three major credit bureaus. Be sure to correct any erroneous information as soon as possible. Reduce your level of debt as much as you can before attempting to qualify for a home loan. All of these actions will improve your chances of qualifying for the full amount you need for your home loan.

If mortgage loans are new to you, you’re probably bewildered by the jargon. One particularly bewildering piece of jargon is “non amortizing” versus “amortizing” loans. “Amortizing” is simple: A loan amortizes when the payments are the same amount from the beginning to the end of the term (plus or minus adjustable interest rates), the payments cover both the interest and part of the principal, and the loan is fully paid off by the end of the term. But how does that translate into the terms of a mortgage?

Amortizing Mortgage Loans

* Monthly payments cover both the accrued interest and part of the principal.

* Payments are designed to pay off the entire mortgage loan gradually over the term of the loan.

* The size of the monthly payments for fixed rate loans remains the same across the entire term of the loan because the interest rate does not change. Because the interest rate for adjustable rate loans fluctuates, the size of the monthly payments fluctuates proportionately.

* Average interest rates are often higher than the interest rate for a comparable non amortizing loan during the non amortizing loan’s grace period.

* Designed for homeowners who plan to own the property long term.

Non Amortizing Mortgage Loans

* Monthly payments cover only the accrued interest, or may cover even less than the total accrued interest and allow interest to compound.

* Payments do not cover the total balance of the mortgage loan, or cover the balance but do not pay off the loan gradually. Once the grace period ends, the entire loan may come due, or the payment schedule may accelerate abruptly.

* May be either fixed rate or adjustable rate. Just as with an amortizing loan, the size of the monthly payments either varies or stays the same. However, the effect of the grace period should be taken into account.

* Interest rates are often considerably lower than interest rates for comparable amortizing mortgage loans during the grace period. After the grace period, interest rates may be considerably higher than for comparable amortizing loans.

* Designed for homeowners who intend to refinance before the end of the grace period. Non amortizing loans are frequently the mortgage type of choice for people who “flip,” or renovate and resell, houses, and are a temporary solution for people who are having financial problems and need lower mortgage payments for a few years.

Mortgage refinancing has increased over the past few months. Lower mortgage rates were generated by early 2009 Obama Administration relief efforts designed to help underwater homeowners and stabilize the housing market, made mortgage refinancing easier and provided hope to the beleaguered. Underwater borrowers can realize big benefits through mortgage refinancing.

Many of these borrowers took advantage of the recent housing market boom by taking on mortgage debt they had no ability to repay. Less scrupulous lenders encouraged this practice by offering adjustable rate loans with attractively low introductory rates that subsequently spiked out of reach. When the housing market crashed, these borrowers were left with homes that had dramatically reduced in value, many to an amount less than that of the outstanding mortgage balance and leaving the homeowners underwater, so to speak. With no options left to them, millions of people simply walked away from their homes, allowing their lenders to foreclose and forever ruining their credit. Mortgage refinancing before default or foreclosure may help to turn things around for the remaining borrowers who stayed with or are on the brink of losing their homes. As of early May, 2009, the average interest rates for 15, 20, and 30 year fixed rate first mortgage loans hovered at or near 5 percent, making mortgage refinancing even more attractive.

The mortgage refinancing process involves either paying off an existing mortgage loan with a new one or combining first and second mortgage loans into a single first mortgage loan. It goes without saying that lower interest rates obtained through mortgage refinancing equal lower monthly mortgage payments. Mortgage refinancing does not involve just lower interest rates, however. You can alter the term of your existing mortgage, which also directly affects the amount of your monthly payment. More of the monthly payment of a loan with a shorter term goes toward paying down principal as the interest rates tend to be lower. The good news is that this decreases your total interest costs. The bad news is that the monthly payment will be higher. Conversely, increasing the term of your mortgage will reduce your monthly payment but will lengthen the amount of time you have to make those payments, thus increasing your total interest cost. Each option has its pros and cons.

Mortgage refinancing can be your road to recovery if you are facing foreclosure. For those who are not facing foreclosure, mortgage refinancing can offer an excellent source of extra monthly income and help you to build up the equity in your home faster.