How to Refinance a Mortgage

Mortgage Interest rates dropped again this week for the sixth consecutive time. This latest decline returns mortgage interest rates to their lowest levels since April of this year. The Federal Reserve started the decline by stopping their stair-stepper increases of short-term interest rates. Mortgage industry experts attribute the decline to the cooling housing market and consumer confidence in the economy.

Mortgage interest rates for a 30 year fixed rate loan average 6.44 percent this week, down from 6.48 percent last week. This is the lowest a 30 year mortgage has averaged since the 6th of April. One year ago a 30 year fixed rate mortgage averaged 5.71 percent.

Mortgage interest rates for a 15 year fixed interest rate mortgage are also down this week to 6.14 percent. This mortgage is at the lowest level since the 6th of April and averaged 5.32 percent this time last year. A five year hybrid Adjustable Rate Mortgage averages 6.11 percent this week, down from 6.14 percent last week. One year Adjustable Rate Mortgages currently average 5.59 percent; down from 5.6 percent last week.

You can learn more about your mortgage options by registering for our free mortgage guidebook: “Five Things You Need to Know About Your Mortgage.”

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If you are considering tapping your home equity for any reason, there are several loan options available to you. These options include home equity lines of credit, second mortgage loans, and cash out refinancing. Each type of home equity loan has advantages and disadvantages; the home equity loan option you should choose depends on your financial situation.

The type of home equity loan you choose will determine the type of interest rate you will receive along with the finance charges you will pay. Your mortgage lender may require you to have an appraisal prior to applying for your second mortgage; this appraisal is used to determine how much equity you have in your home. Equity in your name is the difference between what you owe on your current mortgage and the appraised value of your home.

The amount of equity you have in your home determines how much you can borrow. The interest rate you will receive depends on your credit score, loan-to-value ratio, and the type of loan you choose. When shopping for a home equity loan it pays to compare multiple loan offers to find a loan with the lowest interest rate and fees.

Second mortgage loans typically come with fixed interest rates; this is an advantage over home equity lines of credit. Before taking out a second mortgage you should plan your budget to make sure you can afford the monthly payment in addition to your primary mortgage, car payment, credit cards, and household expense. Remember that your second mortgage is secured by your home just like your primary mortgage. If you default on either loan the lender can take your home.

Many homeowners use second mortgages to consolidate other high interest debt such as credit cards and student loans. Consolidating multiple debts into one payment can ease your cash flow and do wonders for your budget. Consolidating does not eliminate debt, it simply shuffles it around to make it easier to repay. If you don’t change your spending habits you may find yourself further in debt.

You can learn more about your home equity options including common mistakes to avoid by registering for a free mortgage guidebook: “Five Things You Need to Know About Your Mortgage.”

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When you compare mortgage offers you will see that many require points. What are points? If you are going to find the best deal for your new mortgage it is important to understand the terminology associated with refinancing your mortgage. Points are an important part of qualifying for a mortgage; paying points when you don’t have to is a waste of money.

What are Discount Points?

Discount points, or points, are simply an upfront fee you pay the mortgage lender at closing. Points are pre-paid interest on the loan. Some mortgage lenders will finance your points, meaning you do not have to come up with the cash at closing. The points you are required to pay are in addition to your closing costs. You should get something in exchange for paying points, typically a lower interest rate.

How Much is One Point?

One point is one percent of the loan amount. If your mortgage is for $200,000, one point will cost you $2,000. The more points you agree to pay at closing the lower your mortgage interest rate should be. Mortgage lenders typically lower your interest rate by .25% for each point you pay. Paying points doesn’t make sense for every homeowner. The savings you realize by paying the points have to allow you to recoup the expenses to make paying points worthwhile.

Should You Pay Points?

Paying points can be a negotiating point for your new mortgage. If you plan on staying in your home for seven years or longer you will have time to recoup the expense of paying points. If you plan on moving sooner you will most likely lose money by paying this fee. You can learn more about your mortgage options, including common mistakes to avoid by registering for our free mortgage guidebook.

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According to a recent survey of mortgage lenders in the United States, nearly 25% of mortgages currently on the books have adjustable interest rates are due for an interest rate adjustment within the next 24 months. Nearly $400 billion in mortgage debt will have an interest rate increase this year. This means monthly payments for many homeowners will increase significantly.

If you are a homeowner with an Adjustable Rate Mortgage that is due for adjustment you may want to start considering your mortgage options. If your budget is already tight, refinancing to a fixed interest rate mortgage could save you future headache.

Even if your Adjustable Rate Mortgage is still lower than fixed rate mortgages, what happens when the Federal Reserve resumes short term interest rate hikes? Many homeowners refinance because they are planning on staying in their homes for a long period of time and want the security of a fixed payment amount. Many believe mortgage interest rates will continue to rise under the present Administration and do not want to risk having their payments go up as well.

Many homeowners refinance their Adjustable Rate Mortgages to take advantage of fixed interest rates and consolidate other high interest debts. If you have an Adjustable Rate Mortgage know you could cash out equity and consolidate your credit cards, student loans, and car payment into one low interest payment.

Mortgage interest rates are still at historically low levels; many industry experts believe mortgage interest rates will return to those levels as the economy is declining. Taking out a 7% fixed rate mortgage now to replace your adjustable rate mortgage is better than a 8-9% refinance early next year.

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If you are in the process of applying for a mortgage or refinancing your existing mortgage, how do you know which mortgage lender to choose? Many mortgage lenders have conflicting advertisements and even advertise interest rates that don’t make sense. For many people their mortgage is the single most important investment they make; choosing the wrong mortgage lender could cost you thousands of dollars. Here are several tips to help you choose the right mortgage company.

1. Pay Attention to Interest Rates

Mortgage companies often play games with their interest rates. Some mortgages come with introductory interest rates cleverly disguised as the actual loan rate. Watch out for special promotions; if an interest rate seems too low to be true, it probably is. It is important to compare interest rates when shopping for a mortgage; however, interest rates are not the only factor you should consider. Many homebuyers make the mistake of overlooking lender fees and closing costs. If you do this you could easily overpay thousands of dollars for your mortgage.

2. Compare All Mortgage Lender Fees

When comparing mortgage offers examine all of the fees presented on the Good Faith Estimate. The Good Faith Estimate outlines all of the fees and closing costs along with who they are being paid to. Make sure you compare loan offers from a variety of mortgage lenders so you will know what reasonable fees are. Shady mortgage lenders often try to disguise their lender fees. Carefully shop or you will overpay for your mortgage.

3. Be Mindful of Customer Service

Some companies treat their customers better than others. A mortgage company that gives you a low interest rate but horrible customer service might not be the best deal out there. Customer service is important; however, mortgage companies frequently buy and sell mortgage debt. The mortgage lender you have today might not be your mortgage lender tomorrow.

Choosing a mortgage can be an intimidating task; no one wants to overpay for anything, including mortgage loans. If you take the time to do your homework and research mortgage lenders you will avoid making many costly mortgage mistakes. You can learn more about choosing the best mortgage while avoiding common mistakes by registering for our free mortgage guidebook: “Five Things You Need to Know about Your Mortgage.”

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