How to Refinance a Mortgage

Many homeowners have the goal of paying off their mortgages as quickly as possible. There are simple things you can do that will shave years off of your mortgage loan. Here are tips to help you get started.

Paying down your mortgage ahead of schedule involves paying more than your normal mortgage payments each month. When you make additional payments on your mortgage, the entire amount of the extra payment is applied to the loan principle. Paying extra principle has the additional benefit of reducing your interest payments as the interest due on any given month is calculated based on the remaining balance of your loan.

The easiest way to pay extra is by making bi-weekly mortgage payments. Simply divide your monthly mortgage payment in two and pay that amount every two weeks. The end result of making bi-weekly mortgage payments is that you will make one extra payment each year entirely to equity. Bi-weekly payments are easy to swallow; splitting your mortgage payment in half could result in much needed relief for your budget. Making bi-weekly mortgage payments can shave as much as 5 years off the repayment of your mortgage! If bi-weekly payments are not for you, there is the option of making one extra payment each year.

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The goal of most homeowners looking to refinance their mortgage is to find the lowest monthly payment and interest rate. Interest rates have been rising; however, it is still possible to lower your monthly payment which will result in more cash in your pocket. Here tips to help you get started.

Talk to Your Current Mortgage Company

If your current mortgage company is willing to refinance your mortgage the process will often be much easier than starting from scratch with a new mortgage lender. Your current mortgage lender already has most of the documentation required and will not charge many of the fees associated with refinancing your mortgage. If you have a good relationship with your current mortgage company you should contact a representative and let them know that you are considering refinancing the loan.

Consider the Costs

There are many expenses associated with refinancing your mortgage. If refinancing with your current mortgage lender is not an option, you will be required to pay many of the costs you paid when applying for your original mortgage. These costs include application fees, lender fees, legal expenses, and closing costs. You may have the option of financing these fees at closing; this would allow you to refinance your mortgage with little or no out-of-pocket expenses.

Decide if Refinancing is Right for You

Most financial advisors recommend refinancing only if you are able to recoup the costs within two or three years. You recoup the costs of refinancing from the savings you incur by lowering your interest rate or monthly payment amount. There are other reasons for refinancing your mortgage; many homeowners refinance to cash out equity or consolidate home equity loans. You can learn more about refinancing your mortgage and avoiding common mistakes by registering for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

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The concept of an Adjustable Rate Mortgage is confusing for many homeowners. Adjustable Rate Mortgages are typically popular with homeowners looking for lower interest rates and monthly payment amounts.

Adjustable Rate Mortgages offer lower interest rates and payments even when interest rates are rising by offering homeowners an introductory interest rate for a specified period of time. When you see a mortgage offer with an unusually low interest rate, 2.5% for example, this is an introductory rate which your payments will be based on for specified period of time.

How Adjustable Rate Mortgages Work

The introductory period offers a fixed interest rate for a period of time specified in your loan contract. This period of time is typically 3, 5, or 7 years; however, this duration varies from one lender to the next. During this period of time the interest rate and monthly payment amount will not change.

When the Mortgage Adjusts

At the end of your introductory period the mortgage lender will adjust the interest rate and your monthly payment amount. The lender will use whatever financial index your mortgage is tied plus their markup. Many homeowners refinance their mortgages prior to the expiration of the introductory period. If you are concerned with rising interest rates, refinancing your mortgage to a fixed rate loan will save you peace of mind.

Interest Rate and Payment Caps

Caps protect homeowners from excessive changes in their monthly payments or interest rates. Make sure your Adjustable Rate Mortgage has both interest rate and payment caps. Mortgages without rate caps are prone to negative amortization when the payments do not rise enough to cover the increase in the interest rates. You can learn more about your mortgage options by registering for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

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Bad credit can cause financial hardships for any anyone. Does a poor credit rating mean you cannot have a mortgage? A poor credit rating simply means you have to work harder to find competitive financing for your mortgage.

Homeowners with poor credit ratings can easily find 100% financing for their home purchases. In many cases it is just as easy to qualify for this financing as if you had excellent credit. There are many lenders today that specialize in mortgages for people with poor credit. There are even lenders that will finance 103% of the purchase price to cover your closing costs.

If you do not have the time to research mortgage lenders and find these offers yourself, you might consider using a mortgage broker to find offers tailored for your situation. When applying for your mortgage you will want to avoid paying Private Mortgage Insurance; make sure you choose a lender that does not require this insurance policy as it can add hundreds of dollars to your monthly payments.

One way to avoid Paying Private Mortgage insurance is to take out an 80/20 mortgage loan. This type of mortgage is actually two mortgages, one for 80% of the property and a second for the remaining 20%. These loans may come from two separate lenders so you will be required to make two payments. You can learn more about your mortgage options by registering for our free mortgage guidebook.

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Most homeowners are concerned with having the lowest monthly payment for their mortgages. To get the best deal for your mortgage however, you need to concern your self with all fees, including closing costs. By comparison shopping all fees, you will find the best mortgage and save yourself a lot of money and future headaches.

Shop for the Best Mortgage

If you are in the process of taking out a new mortgage or refinancing your current mortgage it pays to compare offers from multiple lenders. Mortgage offers vary significantly from one lender to the next. If you have less than desirable credit it is extremely important to shop from as many lenders as humanly possible. This is important not only to find the best interest rate, but to avoid predatory lenders that take advantage of home owners with poor credit ratings.

Compare Fees

You will need to pay close attention to the fees and points mortgage lenders require. Question any fees that seem out of line with other offers you are considering. If you find offers that require you to purchase insurance you do not need, require periodic refinancing, or have large balloon payments, you should avoid these lenders altogether.

Consider Making Biweekly Payments

If paying down your mortgage quickly and saving money on interest is your goal, consider making biweekly mortgage payments. This means paying half of your monthly mortgage payment every two weeks. If you do this for an entire year, you will make one extra payment every year entirely to equity. Over the course of ten years this can make a significant difference in your outstanding loan balance. To learn more about saving money on your mortgage while avoiding common mortgage mistakes register for our free mortgage guidebook: Five Things You Need to Know Before Refinancing Your Mortgage.

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