Mortgage Refinance Video Tutorial

Points are pre-paid interest payments made to your mortgage lender at closing.  A point is 1% of the mortgage loan value.  If your lender requires you to pay 3 points on a $150,000 mortgage for example, your payment would be $4,500.00

Points are a fee you pay in exchange for a lower interest rate.  Do you have to pay them?  If you have stellar to good credit you can find lenders that will not require points on your loan.  Even with average credit and a little legwork you should be able to find a mortgage that does not require points.  Make sure the points you pay are going to the lender in exchange for the interest rate and not padding the pockets of your mortgage broker.

You can negotiate with lenders to remove the points from your loan.  The mortgage marketplace is extremely competitive; by shopping from a variety of mortgage lenders you should be able to find a lender willing to forego points.

If your lender is not requiring you to pay points on your mortgage and you have the cash on hand you might be able to negotiate for a lower interest rate by offering to prepay points on the loan.  The money you save over the life of the mortgage could make it worth you while to pay the points upfront.

Knowing the answer to this question is no simple thing; anyone with a mortgage has some soul searching to do when deciding whether or not to refinance the loan. This is not easy question to answer and brings up another question: When should you refinance the mortgage?

The rule of thumb as to whether or not you should is if the prevailing interest rate is at least 2% lower than what you are paying now, you could save money by refinancing.  There are costs associated with refinancing your mortgage so you need to recoup those expenses to come out ahead. 

You should also take into consideration how long you will stay in your home.  It takes nearly four years to benefit from the savings associated with refinancing your mortgage.  If you are moving soon you may not want to refinance the mortgage unless there is some compelling reason to do so.  There are other compelling reasons to refinance your mortgage.  You can use a “cash out” mortgage refinance to pull equity out of your home for improvements or other expenses.  You may have a risky option or interest only mortgage and would like to refinance to a safer fixed interest rate mortgage. 

If you are a homeowner wanting to build equity in your home at a faster rate, refinancing to a mortgage with a shorter term is your answer.  Your monthly payment will go up; however you will pay more to the principal loan balance and less to interest each month.  This is important if you plan on using the equity in your home later on for things like paying for a child’s college tuition.

Interest rates for 30 year fixed mortgages dropped again for the second consecutive week.  Mortgage interest rates have been at their highest levels for over 2 years.

Fixed interest rates for a 30 year loan slipped to 6.3%; the highest levels during the month of March had been 6.44%.  Fifteen year fixed rate mortgages dropped to 5.97% this week; this interest rate is down from 5.98% the week before.

Mortgage industry analysts believe the economy is rebounding as inflation is remaining low.
Interest rates for five year hybrid ARM loans are up this week; a five year hybrid mortgage is 5.96% this week. This mortgage interest rate averaged 5.9% last week.

When you apply for a mortgage loan or refinance, the lender will consider a number of factors when evaluating your situation.  One of the key factors is the loan to value ratio.
Loan to value ratio is a ratio of the value of your property against the mortgage amount.  To calculate this yourself divide the amount of your mortgage by the appraised value of your home.  For example, if your home is valued at $150,000 and your mortgage was 120,000 then your loan to value ration is 80 percent.

When your mortgage lender evaluates your creditworthiness they are trying to assess your risk as a borrower.  The larger your loan to value ratio for the mortgage you are requesting the higher your interest rate will be.  This is why making a down payment reduces your interest rate.

The sweet spot for loan to value ratios is 80%.  If you have a minimum of 20% for your down payment you will be less of a risk for your mortgage lender.  A sizeable down payment shows the lender you are responsible with your savings and therefore less of a risk.  This reasoning also holds true for paying points.  Pre-paying points will lower your interest rate and show you are less of a credit risk.

If your down payment is less than 20% your can improve your credit picture by lowering your debt-to-income ratio.  Do this by paying down the balances on your credit cards and closing accounts you are not using or do not need. You can expect your interest rate to be higher in this case; however, by shopping around from a variety of mortgage lenders and doing your homework you may find a loan where your lack of down payment makes little difference.

Did you refinance your mortgage loan last year? If so, don’t forget to deduct any points you prepaid for interest on your 2005 tax return. The points you pay are pre-paid interest; you pay up front to receive a lower interest rate. The good news for you is these points are a deduction on your tax return.

If you refinanced your mortgage last year you may have to deduct the points you paid over the life of the mortgage. This means for last year your deduction will be a percentage of the total amount you paid for points in 2005. The percentage you are eligible for is the total amount you paid in points divided by the term of the loan. (the term length is in number of months)

There is a way around this. If you refinanced twice in 2005 the full amount of your points is your deduction. Also, if you are cashing out for renovations or improvements your points are fully deductible.