Home Mortgage Refinancing Guide

Mortgage loan applications are up for the first time in four weeks despite interest rates rising to their highest levels of the year, according to a recent survey of national mortgage lenders. The survey stated its poll of mortgage loan applications for this week jumped 6.1 percent; this is a reversal from the prior three weeks.

Mortgage interest rates for a 30 year fixed interest-rate loan, not taking into consideration fees, was 6.09 percent this week; this is up 0.11 points from the week before and 0.01 points higher than the last high of 2005. The 30 year fixed interest rate is considered to be the industry benchmark and has risen since late June where it was 5.47 percent. This was the lowest interest rate thus far in 2005. It is also significantly higher than one year ago when the rate stood at 5.64 percent.

Mortgage Refinancing applications rose 4.5 percent this week. Fixed interest rate 15 year mortgages are 5.62 percent, this is up from 5.55 percent the week before. Interest rates for one year adjustable interest-rate mortgages (ARM) rose to 5.34 percent, up from 5.26 percent. Adjustable rate mortgage loans typically have low payments in the beginning and allowed borrowers to purchase homes they may not be able to afford with a traditional fixed interest-rate mortgage. However, the interest rate difference between 30 year fixed interest rate mortgages and the one year adjustable rate mortgage has decreased over the past weeks, subsequent demand for an ARM loans has fallen off.

ARM loans account for 29.3 percent of mortgage applications in this survey; this is significantly down from the week before. Demand for adjustable rate mortgage loans peaked in 2005 with 36.6 percent of mortgage applications in March. Refinancing mortgage loans has decreased as well, dropping to 42.8 percent of applications, down from 43.5 percent in this survey.

The chairman of the Federal Deposit Insurance Corporation warned of an upcoming boom in mortgage foreclosures as interest rates rise, which could spell credit losses for mortgage lenders. Record highs in housing prices have pushed many homebuyers into nontraditional mortgage loans such as option mortgages and interest-only loans. While mortgage interest rates continue to climb, homeowners with these risking types of mortgage loans will see their monthly payments skyrocket. Mortgage foreclosure rates are very low at the moment; however, mortgage lenders are bracing for higher losses. Many lenders are even gearing up their workforces in preparation for the workload.

The housing market in the United States has grown rapidly for the past five years, with home sales and new building setting new records every year. In some parts of the country, home appreciation has risen double digit percentages on an yearly basis.

The government has stated the growth in many cities is unprecedented. Many markets have never experienced a boom like this; the government estimates 40% of cities in the United States have been affected by the housing boom.

If you are currently going through a financial crisis and are falling behind on your monthly mortgage payments, there are steps you can take avoid mortgage foreclosure. First, contact your lender immediately. You may be able to work out a payment agreement where you resume making your regular payments along with a portion of the past due balance until you catch up.

One option may be modifying your mortgage. If you are able to make your monthly payments but do not have enough cash on hand to catch up or can not afford the entire amount of your monthly payment, your mortgage lender may be able to change the terms of your mortgage to make your monthly payment more affordable. Your lender may be able to add the passed due amount to the existing balance, modify the interest, or lengthen the term of the mortgage. Your mortgage lender may be willing to accept the total amount due by a specific date.

You may also be able to negotiate a forbearance from your lender. This would allow you to reduce the amount you pay or even stop payment for a period of time. This is what is currently being done for the victims of Hurricanes Rita and Katrina in the Gulf coast. The best advice you can get in avoiding mortgage foreclosure is talk to your lender, sooner than later. The more you put it off, the deeper you will dig yourself into a hole; a hole that might be too deep for your lender to help you out of.

There are many factors considered when a lender determines your mortgage interest rate.

The amount you borrow to purchase your home can raise your mortgage interest rate if the amount of your mortgage exceeds the conforming loan limits established by the mortgage industry. This conforming loan limit is set at the beginning of every year. Mortgage loans with shorter terms, like a 20 year or 15 year mortgage, can save thousand of dollars in interest payments during the term of the loan; however, your monthly payments will be much higher. An adjustable rate mortgage (ARM) will start you off with a lower interest rate next to a fixed interest rate mortgage loan; however your payments might get higher due to interest rate hikes, like when the Fed raises short term interest rates waging its losing battle with inflation.

Increasing your down payment, for example putting more than 20 percent down, will get you the best possible interest rate. If you only put 5 percent down, or even less, you will pay a higher interest rate for your mortgage since you have less equity in your home for collateral on the mortgage loan. If you have the cash on hand and want a lower monthly payment, you can pre-pay points on your mortgage to secure a lower interest rate. This is a simple concept actually; In exchange for paying points on the mortgage loan upfront, your mortgage lender will lower your interest rate. This will lower your monthly payment on your mortgage. Be careful with closing costs; these are fees paid by the mortgage lender, and if you don’t want to pay all of them, expect to pay a higher interest rate which is more money in the lender’s pocket over the term of the mortgage loan.

Your credit score and debt to income ratio will also affect your mortgage interest rate. If you have a good credit score and your income surpasses your debt, you will qualify for a lower interest rate. Conversely, if you are barely able to meet your bills every month, even with a good credit score, you are going to get a higher interest rate on your mortgage loan. To learn more about securing the best possible interest rate when refinancing a mortgage, sign up for our free guide: “Five Things You Need to Know When Refinancing a Mortgage Loan.”

Private Mortgage Insurance (PMI) can help you purchase a home you might not be able to afford without it. There are however, many misconceptions about Private Mortgage insurance and what it does. The biggest misconception is that it protects you, the homeowner. This is absolutely false; mortgage insurance does nothing for you but take your money each month. Mortgage insurance protects the lender, not the borrower and, the borrower pays for it.

Private Mortgage insurance primarily protects lenders from default; however it does allow potential homeowner the opportunity to finance with smaller deposits without relying on high interest loans. This insurance is usually necessary when a potential homebuyer borrows more than 80 percent of a property’s value. This insurance protects the lender from the borrower not being able to repay the mortgage loan. The mortgage insurance will compensate the lender for any losses they incur when a property goes to foreclosure. The cost of mortgage insurance can range between 1 to 2.5 percent of the loan value. For many paying mortgage insurance is a better option than saving for years on a down payment.

Private Mortgage insurance enables people to enter the housing market quickly while not paying high interest rates. Many homeowners that Refinance Mortgage loans within one or two years could also be entitled to reimbursement of their initial PMI premiums.