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Refinance
Mortgage Loan Information
You will find
information, tips and answers to common questions on home mortgage loans and
refinance here.
You can apply
most of these advices to any type of loan application. Here is the brief list
of subjects discussed;
-The definition of refinance mortgage loan
and how it can help
you
-Common reasons
to want or get refinance mortgage loan.
-What is the easy way of starting the
refinance process.
-Refinance mortgage for people
with good credit and
with bad credit.
-What can you do to improve your chances of
getting refinance mortgage.
-How can you save more money and reduce your mortgage term.
-The things to pay attention when you
refinance to make the progress easier, save money and hassles that may come
in the future.
-The fixed and flexible refinance
mortgages: advantages, disadvantages.
-The difference between refinance and home
equity loan. Advantages and uses of refinance mortgage compared to home
equity loan and vice versa.
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Refinance mortgage loan is a
process of replacing your existing mortgage with a new improved mortgage
and/or lower payments. People refinance their existing mortgages and loans
for variety of reasons. Some of them are; a) They take advantage of lower
mortgage interests than their existing mortgage allowing them to lower their
monthly payments and/or shorten the term of their mortgage. b) They have taken
too many loans over the years including high interest credit card debts. They
would like to consolidate all those loans in one refinance mortgage loan which
gives them one monthly payment and lower interest rates overall. c) They have a
flexible home mortgage loan. They think that the current mortgage rates are low
and worry that the loan rates will go up substantially. They want to have peace
of mind of knowing how much they will pay every month. So, they look to fix
their mortgage interest rate as long as they can. d) They have some equity in
their home and they would like to take some cash out for several different
reasons including home improvement or another investment. Refinance mortgage
loan pays their existing loans in their house and some extra cash payment to
home owner. e) Divorce could be another reason for refinance mortgage. One of
the parties decides to keep the property and pay the former partner his/her
share in the house. Providing there is enough equity on the property, refinance
mortgage loan will increase the mortgage to a level that provides enough cash to
pay for separation.
Internet makes it very
easy to get the ball rolling in the refinance mortgage process.
You can get online, find more information and answers to your questions, check
the current rates and even get a quote in a fairly short time. We should not
ignore the role of a mortgage broker in the refinance mortgage. Especially, if
you are struggling to understand all the financial terms and jargons, a mortgage
broker can go through these with you and guide you all the way. Even you elect
not to see a mortgage broker face to face, there are great mortgage broker
websites. These websites have much more information than a bank would have in
their site. Certainly, there are more products to choose from than going to one
lender’s website. A refinance mortgage broker would come up with several
mortgage quotes for you to choose from. Once you know roughly where the current
mortgages, you can compare them with your existing mortgage terms. As a general
guide you need about 2% rate reduction from your mortgage rate to pay for the
refinancing fees. However, people will have different objectives to achieve in
refinance process. As long as they achieve those objectives they may not care
that much about the 2% rule. You will need to set your objectives and see if you
can better your circumstances with a refinance mortgage loan.
Say you are happy to proceed with
the application, refinance mortgage loan process could be relatively straight
forward depending on how strong case you can put in front of the mortgage
underwriter. A strong case would be that; a) You have plenty equity in your home
b) You (you and your partner in the case of a joint mortgage) have a very good
income to cover your monthly payments and your household expenses (utilities,
school fees, car loans, grocery shopping, etc) c) You have a very good credit
report. You would better check your credit score before you proceed to mortgage
application. Many companies online provide this service. If you answered yes to
all those above, then you can start choosing your lender. There will be a few
wanting to sign you on their book.
You really have to meet first two
conditions. Or at least your income level must be good enough for lower monthly
payments that you might get with refinance mortgage loan. Refinance mortgage can
lower your monthly payments either by lower interest rates and/or longer
repayment term. If your circumstances are not perfect, you might still
find a mortgage lender who is willing to help you at a slightly higher interest
rate. If you meet first two conditions, you have time in your hand to refinance
your mortgage loans, but you have a bad credit score, you might be able to do
something about it. You should first get your credit report and find out what is
wrong. There might be something in there that should not have been there. This
could be corrected by calling your bank or credit card company. You credit score
is bad because you missed some payments on your loans, mortgage or bills. Unless
you have more serious issues as bankruptcy or court judgement against you, you
could improve your score by getting on top of your payments. When you start
making those payments in time, you will see that your credit score will improve
in time. It usually takes 6 – 12 months to see acceptable change in your credit
report.
There are a few things
you could do before applying for Refinance mortgage.
Saving money through a home mortgage loan refinance is more than just finding
the lowest interest rates. You can further cut fees and costs through the
structure of your loan, avoiding PMI and buying lower interest rates. Many
homeowners’ refinancing applications are being denied or returned as incomplete
due to simple, easily avoidable mistakes that could cost the non refundable
application fee. Do your homework; contact one or two mortgage lenders and banks
to ask what their requirements are for a home loan refinance. This way, you can
prepare for those requirements in the meantime. You can close one or two credit
card accounts that you do not use much. This will improve your credit score.
Please make sure that a note indicating this accounts closed on your request
passed to your credit report. If you want to borrow more than 80% of the value
of your home, you will pay private mortgage insurance. You can avoid this cost
by finding a way to stay under 80% borrowing limit. If you choose a longer term
mortgage refinance your monthly payments will be lower. However, over the long
term, you will pay more interest. By paying a bit more every month, you could
shorten your mortgage payment term and therefore, pay less interest in the long
run as well as getting out of your mortgage earlier. These are of course ideal
situations. Your objectives in refinance mortgage could be more than just reduce
the monthly payments or get out of mortgage faster. As there are various reasons
for refinance mortgage, there are different solutions to these problems. Even
though the terms offered may not be ideal, it may still give you the solutions
you need in your finances.
Here
are a few things to pay attention to when you refinance your mortgage loan.
You do not want to overlook anything that you might regret, or that can cause
you problems later. You will save time and money by well structuring your
refinance mortgage application process.
Firstly, you may want to ask for a pre-approval from several different lenders.
When you pre-apply for home mortgage loans online, most mortgage lenders will
not initially pull your credit. Check their website for this information. If
they ask you to describe your credit on the pre approval refinance application,
they are probably not pulling your credit report. So, there is not much to lose
in asking for pre approval. This is one step further than just getting a quote.
Secondly,
check your existing mortgage for any repayment penalties. Sometimes people will
get into their mortgage with the mortgage having an early payment penalty and
they will not even know about it. You do not want to go all the troubles of
applying for a refinance mortgage and find out that you have a heavy early
repayment penalty clause in your existing mortgage. This could be as much as six
months worth of interest in your outstanding mortgage loan balance. You would
have to get significant interest savings on your refinance mortgage loan to
justify refinancing a mortgage loan with a pre-payment penalty.
Thirdly,
Pay closest attention to the interest rates they are offering & the closing
costs when evaluating different lender offers, in the mortgage loan pre-approval
process. These are the two biggest factors that will help you figure out which
lender is right for you. If one of these two factors is too high, it could
offset the benefit of refinancing for you. Remember though that just because a
mortgage company has the lowest rates, it doesn't necessarily mean that it
offers the best deal for you. For example, lenders may offer promotional rates
that will expire at some stage and your rate will go up considerably. Find out
which is a real low rate, which is a bate rate. Many financing companies will
post their rates online. Lower interest on an ARM or fixed-rate mortgage can be
tempting, but have a look at the fine print. What points or fees are usually
required for the rate?
Mortgage lenders lure consumers with low initial numbers,
only to have high closing costs. A better number to look at is the APR. The
federal law requires the annual percentage rate, or the APR, to be disclosed to
consumers before signing any contract. The APR would include the interest rate
of the mortgage and closing costs and this will give you an accurate idea of the
total cost of the refinance mortgage loan. Just as your original mortgage had
closing costs, so will your refinance mortgage. Standard fees include
origination fees, appraisal costs, and closing fees, while points may also be
required to secure a low rate. By looking at the APR, you can determine which
lenders are offering the best fees in relation to their rates.
Get your interest rate and closing
costs in writing as soon as you decide on a lender to work with. Get your lender
to give you a commitment in advance of all of the costs that will be involved
with your loan. Find out if the refinance loan you are getting has a pre-payment
penalty as well. Sometimes lenders will leave out important information like
this, if they think it might scare you away from refinancing with them.
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You are now serious about
refinance mortgage loan, what other issues needs your consideration? First
one would be choosing your rate, should it be flexible rate or fixed
rate? Fixed rate refinance mortgages may be slightly higher to begin
with and they will come with early redemption penalties. On the plus site
they give you peace of mind that your refinance mortgage rate will stay the
same for a long time to come whatever happens to interest rates. That is
quite a comfort for many people who thinks (or in fact experienced in the
past) that the mortgage rates will shoot up drastically. Once you fixed your
mortgage you need to stay with that mortgage a few years due to early
repayment penalties being higher than flexible mortgages.
Flexible home mortgages will go up or down with the determined criteria,
usually the base rate. Here you will have a very small or no redemption
penalty, giving you flexibility to refinance again or pay your loan back
when you sell your home. However, you do not know where the mortgage rates
are going to be in two years time. It may go up to unaffordable levels as
well as hit the rock bottom.
One thing to note here is that some fixed mortgage lenders may allow you to
move your mortgage if you decide to move, although usually selling your home
and buying a new one must be done in the same time. In general the real
fixed rate mortgages would be slightly higher interest; however there are so
many different mortgages to generalize. Some mortgages may only be fixed to
start with and then it may become flexible and higher interest after the
short initial fixed period. These are little tricks the banks play on the
customers to show them how low their monthly payments. Somehow consumers are
focused on the near term and starting monthly payments plays an important
part in their decision. What we are discussing here is a real deal fixed
mortgage of considerable duration, not an introductory fixed period.
Which refinance mortgage rates to choose depends entirely on your beliefs
and circumstances. If you believe that the rates are going to go up
considerably and you want to take advantage of the low rates while they
last, you would go for the fixed rate. On the other hand, you think that the
rates will stay where they are or go down more, you would want to stay
flexible.
If the only purpose of
refinancing your home mortgage loan is to cash out some of the equity in
your home, you might need to consider home equity loans as well. This
is true when the mortgage rates have not gone down much since you got your
current mortgage or in fact went up. While both allow you to cash out equity
in your home, these two types of home financing serves different purposes.
Refinancing Your Home Mortgage Loan is basically replacing one mortgage loan
with another. Typically, refinancing lowers mortgage payments through lower
interest rates or longer loan terms. You can also cash out part of your
home’s equity while refinancing. The real reason behind it is simply you
have been offered a better interest and you will save money on the long run.
Refinancing requires paying closing fees. To recoup these costs, you usually
need to stay in your home for a few years. However, you will save money with
better terms than if you choose a home equity loan (second mortgage).
Second mortgages have slightly higher rates than refinance mortgages, but you have
less or no closing costs. In the case of second mortgages, you keep your
existing mortgage and borrow more on top of it to meet your cash needs at
the time.
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So your new interest rate
only applies to the additional amount you borrowed while first mortgage
remains the same. If you want to tap into your equity to make some home
improvements but plan to sell soon, then a second mortgage would be better
than refinancing your mortgage. Second mortgages also are a better choice
when your current mortgage interest rate is lower than those being offered
by refinancing lenders.
When deciding which financing option to choose, consider the purpose of the
loan. If you want to reduce monthly payments, then refinance. If you simply
want to tap into your home’s equity for a small amount, then apply for a
second mortgage. As these two mortgages are separate, you will be able to
pay your second mortgage earlier than your main mortgage.
Also, consider how long you want to stay in your home. You can lose money
refinancing your mortgage if you don’t stay in your home long enough to
recoup the closing costs with the savings you made from refinancing.
You need to be aware that general
condition of the economy has direct effect on mortgages and loans. When the
economy is good, everyone including lenders are optimistic and this effects
their decision. They look at the applications negatively or positively.
Rising or falling house prices have a positive or negative effect on your
application, too. Obviously, if the house prices are rising, the security
underlying the refinance loan is increasing and vice versa. I know you can
not do much about it; however, it is the case. Should you not have time
pressures, you may choose the best time to refinance or buy a house
according to lenders sentiment. It helps.
The refinance mortgage
lender decides whether or not you get approved, what the interest rates are,
and what other costs, fees, and insurance are needed. Many of these things
can be negotiated, but it is ultimately up to the lender you choose to
refinance. However to refinance or not to refinance is completely up to you.
No matter what financial problem you may have, if any, you are always in
control. There is no single mortgage lender or bank you must use, and there
is no one who can tell you what type of mortgage refinancing you need. When
you are making your choices, consider your circumstances and what you what
to achieve with refinance mortgage loan. While refinancing a mortgage is a
great idea for some people, for others it just does not make sense. Each
situation is different, and needs to be dealt with in its own way. These are
some general tips that will help any homeowner avoid a lot of the hassles of
refinancing home mortgage loan, and help them find the best mortgage
refinance for their situation. Hope these information has been useful.
Further Readings
(Click on The Title)
Further References
Refinance Home Mortgage Loan Blog
Mortgage Articles
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