Home Mortgage Refinancing Guide

Mortgage interest rates in the United States are up slightly this week. The interest rate for a traditional fixed thirty-year mortgage is 6.12% this week. This is up from 6.1% last week. This is the first increase in this mortgage interest rate for six consecutive weeks.

Fifteen year mortgages are also up slightly this week. A fixed fifteen year mortgage is at 5.7% this week; this is up from 5.67% last week. One year adjustable rate mortgages are also up; one year ARMs are averaging 5.2%. This is up from 5.18% the week before.

According to one national lender, this slight hiccup in mortgage interest rates is likely due to anticipation that the Federal Reserve will raise short term interest rates next week. The Federal Reserve will meet on January 31st and is expected to resume the stair-stepper increases for short-term interest rates. When this happens expect mortgage interest rates to follow the trend.

Interest rates are still slightly lower than their highest levels in 2005. This is low interest rate is continuing to fuel the housing market in the United States.

At this time last year fixed thirty-year mortgages averaged 5.66%. Fixed rate fifteen year mortgages averaged 5.14%. One year adjustable rate mortgages averaged 4.18% this time last year. These interest rates assume .5% charged for fees and .6% pre-paid points.

The only mortgage rate unchanged this week is 5/1 adjustable rate mortgage; this interest rate remained at 5.75%.

Making additional payments towards the principal balance of your fixed mortgage will not change your monthly payment. Traditional mortgage loans are self amortizing. This means the payment you make includes both interest and principal amounts. Every monthly payment you make pays back interest and lowers your principal balance.

Paying extra towards the principal balance changes the amounts you pay in interest. By lowering the outstanding principal balance you are lowering the amount of interest you pay over the life of your loan.

If you are looking for ways to lower your monthly payment refinancing may be your only option. If paying off your mortgage early is your goal you can accomplish this by making bi-weekly payments and paying more principal each month.

Your mortgage loan is typically the largest purchase you will make. This fact aside, many homeowners are very uncomfortable when it comes to dealing with mortgages and mortgage refinancing. It helps to familiarize yourself with the terminology used when dealing with mortgages. This makes it much easier to do your homework when shopping for a mortgage loan; doing your homework will ensure you get the best deal for your money.

Basic mortgage terminology involves interest rates, closing costs and points.

Interest Rates

When your mortgage lender gives you a loan for your home they are trying to make a profit by charging you for use of their money. This is the interest you pay and mortgage loans are front loaded with interest. Front loaded means in the early part of your mortgage most of your payments will be applied to interest on the loan. If you are in the process of shopping for a mortgage pay close attention to the lock period your lender offers you. The lock period is the amount of time you have to close on the mortgage where the lender guarantees the interest rate you have selected. If you run into problems closing and go over the timeframe for the lock period you could lose that interest rate. Make sure your lender gives you enough time to close, including any unforeseen problems.

Points

Points are basically pre-paid interest on your loan. Like a down payment, you are pre-paying this interest to receive a lower interest rate for your loan. Points are 1 percent of the loan amount. For example on a $200,000 mortgage loan pre-paying 1 point at closing would cost your $2,000. If you can afford to pay at least 3 points at closing time you could significantly lower your interest rate. This is a small price to pay for the amount of interest you will save over the course of your mortgage.

Closing Costs

Closing costs are the out-of-pocket expenses you will have when closing on your mortgage. The costs you will pay at the title company’s closing will depend on the lender and the loan you have selected. Your mortgage lender is required by law to disclose all fees required prior to closing. You should receive a good faith estimate of these expenses from every lender as part of your comparison shopping before choosing a mortgage.

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The Federal Housing Administration helps people with low incomes qualify for mortgage loans. The FHA offers insurance to lenders so they can lend to individuals and families that may not qualify by other means.

As a potential homeowner it will be easier to qualify for the mortgage because the FHA is insuring your mortgage. Because of this insurance most lenders will waive certain requirements to qualify.

You can still qualify even if you have had credit problems or bankruptcy. FHA loans only require a 3 percent down payment. This down payment can come from a variety of sources including relatives, charitable organizations, or even your employer.

FHA insured loans come with competitive interest rates. When you receive a FHA quote from a lender always compare it to the traditional and adjustable interest rates.

One of the most important reasons for getting an FHA loan is the agency can help you avoid foreclosure if you have financial difficulties and are unable to keep up on your payments. Talk to your lender about getting qualified for an FHA mortgage loan.

Americans are using interest only mortgage loans more frequently to purchase homes they cannot afford with traditional mortgages. These loans are popular with real estate investors but are being increasingly used by families to lower their monthly payments and stretch their home purchasing budgets.

Homeowners that use these kinds of mortgages make interest only payments and do not pay the principal balance on the mortgage at the beginning of the loan. This introductory period can last from three to five years and typically comes with a lower interest rate. This introductory period can significantly lower monthly mortgage payments at the beginning of the mortgage loan.

At the end of this period your payments will increase dramatically. This happens because the mortgage principal payments are now due in addition to the interest. When this happens your mortgage will be amortized for the remaining term of the mortgage. This term could be as low as 25 years depending on the length of the introductory period, instead of 30 years. The interest rate is also recalculated using current rates which will raise your payments even more.

These mortgages can be useful tools for homeowners that stay on top of their finances; however, the average homeowner should not utilize an interest only mortgage as it is extremely easy to get into trouble. Mortgage brokers may push these loans on homeowners that are unfamiliar with the risks; this is often a recipe for disaster.

Many homeowners don’t understand how these interest only mortgages work and how fast their payments can rise after the introductory period finishes. These loans often come with heavy prepayment penalties that can cost thousands of dollars to get out of the mortgage. The increasing popularity of these loans has caused the government to issue warnings regarding the risks of interest only mortgage loans.