Mortgage Refinance Guide

Paying your mortgage in bi-weekly payments can save you thousands of dollars in interest and cut years off your mortgage loan. You may see offers from your lender to start a bi-weekly repayment plan for you; they offer to do this for a one time fee of as much as $400. Don’t waste your money with such offers.

You can easily start your own bi-weekly mortgage plan without paying a fee. In order to do this you need to read the fine print on your mortgage loan agreement. Some lenders make it difficult to realize savings from a bi-weekly payment plan. It is not in a mortgage lender’s best interest to save you money this way. The way they do this is by posting payments to your account once a month. By doing this the lender is preventing you from saving any interest on your mortgage; this is the main reason for starting a bi-weekly repayment plan in the first place.

If your mortgage lender posts payments to your account in this manner, call them and ask to have this changed. If the lender is unwilling to do this refinance with a lender that will.

Here is how bi-weekly mortgage payments work. When you start a bi-weekly repayment you pay half of your monthly mortgage payment every two weeks. Making bi-weekly payments results in 26 half mortgage payments every year; this is the same as making 13 monthly mortgage payments every year. This extra payment over the term of your mortgage shortens the time it will take you to pay off the mortgage loan. A side benefit of this extra payment is you will pay less interest over the life of your mortgage loan.

Mortgage lenders are in business to make money. Lenders make money by loaning money; whether or not they lend to you as a homeowner depends on the risk they are willing to take by giving you a mortgage loan. Because of this your mortgage lender may require you to meet certain criteria in order to qualify for your loan. This criteria includes your past credit history, your income, current debt ratio, and the collateral used to secure the loan. Factors like employment history are becoming less important to secure a mortgage; in recent years working at the same job for 10 or 15 years helped your credit worthiness. Today credit scores rely more and more on your repayment history.

Don’t take this the wrong way, an excellent credit history will help you secure a lower interest rate and get you a loan with better terms. However, with mortgage interest rates at historically low levels, many sub-prime lenders are offering bad credit mortgage loans with very competitive interest rates.

Another important factor is your income. Your income is used to calculate a debt-to-income ratio. This factors in your total debt picture: car loans, credit cards, student loans, every current debt in your credit report. This helps the lender determine your ability to make your monthly payments. Homeowners with low debt-to-income ratios represent much less risk than those who are in debt up to their eyeballs.

You can easily calculate your own debt-to-income ratio using your credit report. When you look at your credit you’ll find three columns: high credit, balance, and the minimum payment amount. High credit represents the credit limits on your credit cards or the original amount you borrowed on your loans. Current balance as the name implies is the balance that you owe; the minimum payment is the amount required by each lender in payment every month. Using this information from your credit report you can calculate the ratio of your debts to your monthly income.

To learn more about assessing your risk to a lender and credit-worthiness, sign up for a free guide to mortgages and mortgage refinancing: “Five Things You Need to Know Before Refinancing a Mortgage.”

Mortgage interest rates dropped this week as the markets reacted to the Federal Reserve. It is the belief of many analysts that the Fed’s onslaught of interest rate hikes may be coming to an end. According to a survey of one national mortgage lender, interest rates for a fixed 30 year mortgage are 6.3% this week; this is down from 6.32% the week before.

Mortgage interest rates are off from their highest levels of the year in November at 6.37%. Many mortgage lenders believe rates will resume their upward spiral in 2006.

Because of these interest rate hikes many analysts believe the housing market will continue to cool as mortgage interest rates resume their upward climb. This does not seem to be impacting the sales of homes across the country; sales of homes continue to set records in 2005.

Mortgage interest rates for 15 year fixed rate loans are averaging 5.85% this week. This is down from 5.87% the previous week. Interest rates for one year adjustable rate mortgages (ARM) are currently 5.15%; these loans averaged 5.17% the week before.

Mortgage rates for five year hybrid ARM loans are currently 5.77%. These loans have dropped from 5.78% the previous week.

At this time last year 30 year fixed rate mortgages were running 5.68%. Fixed rate 15 year mortgages were 5.11%, and the one year adjustable rate mortgage averaged 4.18%.

Traditional mortgages used to come in one or two flavors; in the past when you purchased a home most people used a fixed rate 30 year mortgage. In today’s market approximately 33 percent of all mortgages come as non-traditional mortgages described by some as “creative and risky” financing. This new breed of mortgage loans allows many to purchase more home than they can actually afford.

Adjustable rate mortgages (ARM) have been around for a while now. These loans offer a low fixed interest rate for an introductory period, after which the interest rate changes based on prevailing short term rates. A new breed of mortgages followed; interest only adjustable rate mortgages allow danger-loving homeowners to make interest only payments during the mortgage’s introductory period.

Adjustable rate mortgages have further evolved into what are called option adjustable rate mortgages. These “option” mortgage loans allow homeowners to pay some or none of the interest during the introductory period. The interest not paid is tacked onto the principal loan amount. This has led to the rise of a new phenomenon called “negative amortization.”

In some circumstances these new loans make sense. For people who earn a living based on commission and have trouble verifying their income, interest only mortgage loans are a godsend. These loans keep the payments low and more cash in your pocket. These loans are good only for the financially responsible; for everyone else they are a disaster waiting to happen.

The risk involved comes when interest rates spike and the introductory period comes to end. Many homeowners are greeted by a dramatically larger monthly mortgage payment and have to struggle to make ends meet. This shock can come in the form of a several hundred dollar increase in monthly payment amount, even a thousand in some cases.

What can you do if this happens to you? Refinance quickly, if you can qualify. To learn more sign up for our free guide, “Five Things You Need to Know Before Refinancing a Mortgage.“

Reverse mortgages are becoming an increasingly popular loan option for many homeowners. These types of loans used to be solely for elderly senior citizens as a means of cashing in on the value of their homes. Now that reverse mortgages have been popularized, many younger homeowners are using the loans to supplement their retirement income.

Reverse mortgages can be taken with a variety of payment options. These options include monthly payments, a lump sum payment, equity lines of credit, or a combination of the previous options. Reverse mortgages are not repaid to the lender until the homeowner dies or moves from the property, and the homeowner retains title of the property.

Mortgage lenders report demand for this type of mortgage loan has been doubling each year; however, the pace has slowed slightly due to the mandatory class homeowners must undergo before loans can be approved. The class is provided by the Department of Housing and Urban Development.

There are no restrictions on uses for the money; many homeowners make repairs or home improvements, pay off bills, or use the money for medical expenses. The best part about using a reverse mortgage is that it allows you to tap into the equity in your home without tax liability; however if you plan on moving this is not the loans for you.