Home Mortgage Refinancing Guide

If you are currently considering refinancing your home mortgage loan there are some questions you need to have answers to before you start shopping.

First, how long will you live in your home? This is important to know because if you only plan on staying in the house for a few years you may be able to save money with an adjustable rate mortgage loan. You should also make sure your mortgage doesn’t come with a penalty for early repayment if you have to move. If you’re unsure how long you’ll be staying in your home consider the average American today doesn’t stay in one place for more than seven or eight years.

Second, you need to understand the costs associate with refinancing your mortgage. These costs take the form of lender fees, appraisals, prepaid points, closing costs, and other miscellaneous fees. Make sure you get a good faith estimate of closing costs from your lender and read all the fine print. If you don’t understand the language used in the documentation don’t be afraid to ask for someone to explain it to you.

Third, figure out how long it will take you to recoup your expenses from refinancing. The whole point of refinancing your mortgage is to save money. You save money by lowering your monthly payment, lowering your interest rate, and getting more flexible terms from your lender. It is from these savings you can figure out how long it will take you to recoup your closing costs. If it’s more than five years to recoup those expenses it may not be worth your while

Next, decide how much risk you are willing to tolerate with your loan. If your comfortable speculating on market conditions and interest rates you may be able to save some money with one of the riskier flavors of adjustable rate mortgages such as option or interest only mortgage loans.

You will need to understand the lock period for the lenders you are working with. If it takes longer to close than the lock period your lender is offering you could lose your interest rate or some of the perks you may be getting in the form of terms.

Another good idea is to prepare a budget. It is important to know how much of a monthly payment you can afford. You also need to consider insurance, association fees, and property taxes when deciding how much you can afford. Don’t forget to budget savings into your plan. A disaster fund is an important part of home ownership as repair costs come at the most inopportune times.

Next, take an assessment of your credit history and make sure there are no errors in the report. Our guidebook has an excellent chapter on how to contact credit reporting agencies regarding discrepancies in your credit reports.

Finally, make sure your homeowner insurance policy is up to snuff for your region of the country. Don’t skimp on flood insurance if you live in area prone to floods. Also, make sure the contents of your home are also covered. Make sure you do this prior to closing on your new mortgage.

If you are a homeowner that will be staying in your home for at least seven years, traditional fixed interest rate mortgages are safer choice. If you’re planning on moving before then, an adjustable rate mortgage may be the way to go.

Adjustable Rate Mortgages loans are as the name implies, a loan with a variable interest rate. These loans have become an extremely popular option for homebuyers in the United States. Adjustable rate mortgage loans allow homeowners to have smaller monthly payments while qualifying for financing they may not be eligible for with a traditional fixed rate mortgage loan.

Adjustable rate mortgage interest rates closely follow short term interest rates in the bond market. Traditional fixed rate mortgage interest rates are associated with long term interest rates. Homeowners typically pay more for long term interest rates because the lenders assume more risk with longer loan durations. With short term adjustable rate loans the homeowners shoulder more risk with their monthly payments. As interest rates rise, so do monthly payment amounts. Also, when the introductory period of the adjustable rate mortgages comes to an end, the monthly payment can increase sharply depending on the mortgage lender’s terms.

According to one national lender, an adjustable rate mortgage can often be as much as 3 points lower than a traditional fixed interest rate mortgage loan. In spite of this, the risks associated with adjustable rate mortgages may not be for everyone.

If you’re planning on staying in your home or are uneasy with the recent stair-stepper interest rate hikes at the hand of the Federal Reserve, stick with a traditional 30 year fixed interest rate mortgage. You’ll sleep better at night.

This is good news for homeowners; particularly those with adjustable rate mortgage loans. Mortgage interest rates are at their lowest levels for the past three months. While interest rates for traditional fixed rate mortgage loans are still higher than they were one year ago, interest rates are at their lowest point since October of 2005.

According to a survey of one national mortgage lender, a 30 year fixed interest rate mortgage loan dropped to 6.1% this week. This is down from 6.15% the previous week. At this time last year the same mortgage loan was running 5.67%.

The inverted yield curve still exists in the market place this week as short term interest rates are up again; a one year adjustable rate mortgage loan (ARM) is currently at 5.18%. Last week a one year ARM was 5.15%. The past six weeks have seen long term mortgage rates off by almost one quarter a percent; this drop seems to have little to do with easing inflationary tendencies in the market. The housing market is predicting mortgage interest rates will favor homebuyers for the remainder of 2006.

This is great news for homeowners with Adjustable Rate Mortgages such as option and interest-only loans. These homeowners have an excellent opportunity to refinance their riskier adjustable rate loans to traditional fixed interest rate mortgages before interest rates resume their stair-stepper increases at the hands of the Federal Reserve.

Interest rates and market conditions are making 2006 a tough year for lenders and mortgage brokers. These conditions are making it difficult for people to refinance their mortgage loans, with a few exceptions. If you are an adjustable rate mortgage holder now is definitely your time to refinance; mortgage lenders and brokers are falling all over themselves to get your business.

If you are refinancing your mortgage you need to shop from a variety of lenders and brokers. Read the fine print on every offer you receive. Demand more from your lenders, you may not get a better interest rate; however, you can bargain over points and terms. You are looking for flexibility in your repayment terms; this will help you if you are ever unable to keep up on your monthly mortgage payments.

Other demands you can make include the waiver of private mortgage insurance, waiver of one payment or more, and waiving lender fees. The most flexible loan contracts allow for years of delinquency arrangements before the lender will foreclose.

If you are purchasing your home with less of a down payment than 20 percent your lender may require you to purchase private mortgage insurance to secure your loan.

Private mortgage insurance pays your lender if you default on the mortgage. The premiums can raise your monthly payment by as much as $200 per month. There are however, steps you can take to avoid paying for private mortgage insurance.

You may be able to take out a “piggyback mortgage.” If you have at least 10 percent of your down payment you can borrow the remaining 10 percent. This piggyback loan will come at a much higher interest rate; however, this interest is a tax deductible expense where private mortgage insurance is not.

There are a variety of lenders that offer down payment loans. These lenders get a premium interest rate for their money and the homeowner is able to make the proper down payment to secure a mortgage loan.