Home Mortgage Refinancing Guide

If you are a homeowner looking to refinance your mortgage in Albuquerque, New Mexico there are steps you can take to ensure you get the best interest rate for your new mortgage.

Tune up Your Credit

Cleaning up your credit is easier than it sounds.  The first thing you should do is check your credit report for errors. If you find errors on your credit reports you need to dispute the errors and have them corrected.  If you live in the United States you have three different credit reports, one with each credit agency.  Each credit agency has their own procedures for disputing errors.  The three credit agencies are:  Trans Union, Experian, and Equifax.

Improve Your FICO Score

Your FICO score is a number magically derived from your credit report.  The company that creates the FICO score is not required to disclose how they calculate your score; however, your debt-to-income ratio is a large part of that score.

Your debt-to-income ratio is the ratio of your total debts (credit cards, car loans, personal loans, student loans, and mortgage) against your total income.  The more debt you have the lower your credit score will be.  The lower your credit score, the greater risk you are for mortgage lenders.  You can improve your debt-to-income ratio and your credit score by paying down the balances on your credit cards.  If you have credit cards you do not need you should close the accounts.

You can also improve your FICO score by paying your bills on time.  Six months of on time payments before applying for a mortgage will improve your credit score.  Never make major purchases while shopping for a mortgage or let lenders access your credit report until you have chosen a mortgage.  Too many credit inquires from mortgage lenders can damage your credit score. 

To learn more about Albuquerque Mortgage Refinance sign up for our free guide:  Five Things You Need to Know before Refinancing Your Mortgage.

If you are in the process of taking out a mortgage or refinancing you current mortgage do not sign with a lender until you have reviewed this checklist.  Mistakes during the mortgage process can cost you thousands of dollars; here are tips to avoid making mistakes.

The mortgage process can be overwhelming.  Interest rates, fees, terms, and conditions; it is a lot to take in at one time.  When there is no one in your corner how do you know that the lender isn’t taking advantage of you? 

Your best defense against being taken advantage of by a mortgage broker or lender is to educate yourself.  You need to learn the basics and know what to look for before singing the mortgage contract.  Here is what you need to understand before signing on the dotted line.

Understand the Interest Rate

The interest rate you choose will determine how your monthly payment is calculated.  Mortgage interest rates fall into two categories:  fixed interest rates and adjustable interest rates.  If you choose a fixed interest rate you will always know what your monthly payment will be.  If you choose a mortgage with an adjustable interest rate the payment will change from one year to the next.  The problem with adjustable interest rate mortgage is your monthly payment could increase significantly when interest rates go up.

If you choose an adjustable rate mortgage find out if there are caps on how much the rate can go up.  Some lenders provide caps limiting the amount the interest rate can go up at one time.  Other caps limit the amount the interest rate can go up over the life of the mortgage.  If your adjustable rate mortgage does not come with caps on the interest rate changes you might want to reconsider signing with that lender.

Does the Mortgage Have Prepayment Penalties?

Mortgage lenders like prepayment penalties.  This penalty is a fee you have to pay if the mortgage is paid off before the end of the term.  Prepayment penalties are designed to discourage refinancing. If you need to sell your home down the road and your mortgage comes with a prepayment penalty you will have to fork the money over to the lender before selling your home.  If the lender you are considering is requiring a prepayment penalty take your mortgage shopping somewhere else.

Mortgage Term Length

The mortgage term is the length of time your lender gives you to repay the loan.  If you choose a mortgage with a shorter term, such as 10 or 15 years, your mortgage payment will be higher; however, shorter term mortgages come with lower interest rates.  With a short term length you will also build equity in your home at a much faster rate.

If you are looking for a mortgage with the lowest payment you will need to choose the longest term length possible.  Mortgages with longer term lengths come with higher interest rates because they represent a higher risk for the lenders.

Educating yourself before shopping for your mortgage could save you thousands of dollars.  To learn more sign up for a free mortgage guidebook: Albuquerque Mortgage Refinance

As a homeowner in the United States, you have certain rights under the Real Estate Settlement Procedures Act of 1974. According to the Department of Housing and Urban Development, RESPA protects homebuyers by requiring disclosure of lender fees and prohibits excessive fees and kickbacks during the home financing process. RESPA also outlines procedures for the settlement process when closing on your home; when you close on a property you are transferring title from the seller to the buyer. During the closing process the purchaser assumes the mortgage and takes legal possession of the home.

The RESPA legislation also requires lenders to disclose their fees and lending conditions at various points during the buying process.  RESPA spells out certain rights and protections for homeowners pertaining to their mortgages. Here is the basics of that protection.

1. As a homeowner you have the right to shop for your mortgage loan and compare the fees and interest rates from as many mortgage lenders as you choose.

2. You will be informed of the total costs associated with any mortgage. Mortgage lenders are required to disclose all fees, interest rates, and any add on expenses.

3. You have the right to a good faith estimate of all mortgage fees and closing costs before closing on the mortgage.

4. Mortgage lenders are required to disclose all aspects of the loan prior to signing.

5. You have the right to an explanation of all language used in the contract and any fees you are required to pay.

6. If your mortgage application is denied you have the right to a fair explanation as to why you were denied credit.

Many homeowners take these protections for granted today; however, it is the Real Estate Settlement Procedures Act of 1974 that guarantees homeowners in the United States these protections. If you suspect a lender is in violation of this legislation contact your local HUD office. For more information on Albuquerque Mortgage Refinance, sign up for our free mortgage guide: “Five Things You Need to Know Before Refinancing Your Mortgage.”

If you are considering taking out a new mortgage or refinancing your current mortgage, you may have noticed lenders proudly offering “no closing costs mortgages.”  The mortgage lender claims this loan is free of closing costs; however, you pay for this as long as you have the mortgage.

It really is dishonest, but many mortgage lenders do it.  They use “no closing costs” as a gimmick to distract you, and then sock it to you with higher interest rates.  What the lender doesn’t tell you about this mortgage is you are paying a higher interest rate than you would otherwise.  You could qualify for a much better mortgage by paying the closing costs. 

You may save $2,000-$3,000 at closing with a no closing cost mortgage; however, your monthly payment will be anywhere from $100-$300 more than if you had paid the closing costs.  Your mortgage lender might even try to talk you into taking a higher interest rate instead of paying the closing costs on a traditional loan.

Suppose for example, you would save $3,000 in closing costs by taking one of these mortgages.  For a $200,000 mortgage at 6% interest your monthly payment will be approximately $1,200.  If the offer on the table is 7% interest with zero closing costs you would save $3,000, right?  Wrong! 

At 7% interest your $200,000 mortgage will have a monthly payment of $1,330; this is $130 a more than if you paid the closing costs yourself.  If you pay the $3,000 you will break even after 23 months.  If you take the higher interest rate you’ll pay an extra $8,000 to your greedy mortgage lender on top of the $3,000.

The only time these loans are a good deal is if the interest rate increase is very slight, say .125 percent.  There are not very many lenders willing to offer no closing costs loans at this interest rate.  In almost every case you are better off paying the closing costs yourself in exchange for a better interest rate.

For information on Albuquerque Mortgage Refinance, sign up for our free mortgage guide: “Five Things You Need to Know Before Refinancing a Mortgage.”

Mortgage interest rates rose this week for the second consecutive week.  According to a survey of national mortgage lenders both 30 and 15 year fixed interest rate mortgages are on the rise.

Interest rates for 30 year fixed rate mortgages average 6.43% this week.  This is up from 6.35% last week.  A 15 year fixed rate mortgage is averaging 6.10%.  This is up from 6% last week and the highest this interest rate has been since the summer of 2002.

Adjustable rate mortgage interest rates are up this week as well.  A one year adjustable rate mortgage averages 5.57% this week, up form 5.51% last week.

At this time last year a 30 year mortgage was 5.93%.  A 15 year fixed rate mortgage was 5.48%, and the one year adjustable rate mortgage averaged 4.23%.

Interest rates are up as the result of high energy costs and inflationary concerns with the US economy.  Fear of inflation causes mortgage interest rate hikes.  Mortgage industry analysts predict the Federal Reserve will continue to raise short term interest rates to battle inflation.  The Federal Reserve raised short term interest rates for the 15th consecutive time last week. 

For more information on Savannah Mortgage Refinance sign up for our free guide: “Five Things You Need to Know Before Refinancing a Mortgage.”