Home Mortgage Refinancing Guide

Subprime mortgages are loans for homeowners who don’t qualify for traditional mortgage loans. These mortgages were very difficult to obtain in the past; however, the mortgage marketplace has changed dramatically over the past few years.

Banks and Credit Unions discovered there was a great deal of money to be made in the subprime market as nearly 50% of Americans today have poor credit. This is good news for homeowners, because today’s marketplace allows for competitive interest rates and low fees for those with poor credit ratings.

When applying for a traditional mortgage loan one of the main deciding factors as to being approved is your credit history. If your FICO score is less than 620 then you are considered a credit risk. When a lender loans you money in the form of a mortgage they are assuming the risk that you will make your payments on time. The higher your FICO score, the longer you have been in your job, the less risk you present to the lender.

Because these factors are working against subprime borrowers, they will not get the best deals for their mortgages. Additionally, a subprime lender may require that borrowers prepay points to qualify; this means you’ll have to have cash on hand at closing time.

If you’re in the market for a subprime mortgage your best bet may be to find a good mortgage broker. A good broker can help you find the best deal despite your credit rating.

Mortgage interest rates started the year without much excitement; however, mortgage rates did drop slightly this week.

The average interest rate for a fixed 30 year mortgage this week fell to 6.21%, this is slightly lower than last weeks interest rate of 6.22% according to one national lender. At this time last year a 30 year fixed rate mortgage averaged 5.77%. As for 15 year fixed rate mortgage loans, this week they averaged 5.76%; this remains the same as last week’s interest rate. At this time last year the fixed 15 year rate was 5.21%.

Five year adjustable rate mortgage loans (ARMs) are slightly down to 5.78% from 5.79% last week. At this time last year the five year interest rate was 5.03%. One year adjustable rate mortgages (ARMs) are at 5.16% this week, down from 5.15% last week. This time a year ago the one year ARM averaged 4.10%.

Financial markets in the United States have been subdued this week, waiting to see what the Fed will do about inflation in 2006. Some analysts believe we will see fewer interest rate hikes during the New Year.

When shopping for a mortgage you’ll see lenders throw around terms like “pre-qualified” and “pre-approved,” but what’s the difference?

When it comes to mortgage lenders these terms are not the same. Pre-qualified does not mean the lender has approved you; you still need to complete the application process with the lender to be approved for the mortgage.

If you are going through the process of pre-qualifying with a lender you will be providing the mortgage lender your pertinent financial information. This could include an evaluation of your credit worthiness. Based on the discussion you have the lender you will get an idea of what you qualify for as far as mortgage amounts and interest rates. At this point the lender has not committed to these figures; you’ll need to have the mortgage lender draw up additional paperwork to lock in the terms and interest rate being offered.

If your lender has given you a “pre-approval,” this is more substantial than being “pre-qualified.” A pre-approval letter will provide the maximum amount they will lend you for your mortgage, and the terms of the loan. As long as these terms are met you should have no problem securing the terms and interest rates for the mortgage being offered.

It is always best to shop from a variety of mortgage lenders and brokers to secure the best mortgage loan for your situation.

Adjustable rate mortgage loans are simply mortgages with an interest rate that changes over time. If you are considering an adjustable rate mortgage, your lender will often present you with an offer in the form of two numbers. You may see these numbers similar to these: 1:1, 3:2, or 5:1.

The first digit is the number of years in the mortgage’s introductory period. During the introductory period the mortgage will have a fixed interest rate. The second digit is the timeframe the lender will review your loan. Take a 3:2 adjustable rate mortgage for instance; for the first three years of the loan the initial interest rate is guaranteed. After that period the lender will review and adjust the interest rate every two years.

Before deciding on an adjustable rate mortgage for your home, you need to understand the risk associated with this time of loan and weigh that risk against the advantages.

The main advantage you could receive from choosing this type of mortgage is that adjustable rate mortgages typically come with lower interest rates than a traditional fixed rate mortgage. This lower interest rate results in a lower monthly mortgage payment. Adjustable rate mortgages make sense if you do not plan on staying in the home very long or plan on refinancing before the rate goes up.

There are risks associated with adjustable rate mortgages. The main risk is that interest rates will go up and take your monthly payment with it. This could put a serious damper on your monthly cash flow. If you’re unable to keep up on your monthly payment you could even lose your home.

If you’re a homeowner considering refinancing, one of the first lenders you should talk to is your current one. By consulting your current lender you may be able to talk them into a mortgage “modification.” The odds of them doing this for you are slight, but it never hurts to ask especially if you drop the hint that you’re going to refinance.

A mortgage “modification” is simply a change to the terms or interest rate of your current mortgage. If your lender is willing, they will modify your current mortgage by allowing you to pay a lower interest rate for the term of the loan. This modification is referred to as a ?rider? on your original mortgage. Going this route does not require a lot of paperwork and typically doesn’t cost you much. It is usually in the lender’s best interest to keep your business.

Mortgage “modifications” are also common for people who are in financial trouble. Rather than go through foreclosure your lender may agree to changing your payments and work with you. The catch is you have to ask, and ask sooner than later.