Home Mortgage Refinancing Guide

Applying for a mortgage can be a stressful situation for anyone. You can simplify the process by making sure your finances are in order prior to applying. Here are several tips to help you qualify for the best mortgage for your financial situation.

Choose the Best Mortgage Loan

Mortgage loans basically come in two flavors: mortgages with adjustable interest rates, and mortgages with fixed interest rates. If you choose a mortgage with a fixed interest rate your payments will be fixed for the duration of the loan. Adjustable Rate Mortgages come with variable interest rates that change based on prevailing interest rates and your lender’s markup.

How Much of a Mortgage Can You Afford?

Before you apply for a mortgage it is important to prepare a budget to determine how much of a mortgage payment you can afford. There are a number of free mortgage calculators you can use to determine how much your payment will be based on the purchase price of your home, your taxes, and insurance.

Take Stock of Your Credit

The first thing a mortgage lender does upon receipt of your application is run your credit. If you have errors or late payments this will reduce your credit score and raise the interest rate you will qualify for. You should request a copy of your credit report from each of the three credit agencies and carefully scrutinize these records for errors. If you have late payments on your credit reports, you might want to consider waiting six months before applying to build up your payment history. You can learn more about your mortgage options, including mistakes to avoid by registering for our free mortgage guidebook.

Taking out a mortgage can be a very stressful time for many homebuyers. Finding the best mortgage loan for your financial situation requires doing your homework and researching mortgage lenders. When you compare loan offers from lenders it is important to compare all aspects of the mortgages you consider, not just the interest rates. This comparison will allow you to determine what fair interest rates, fees, and closing costs are for your situation.

If you have bad credit you can expect to pay higher interest rates and fees than homebuyers with good credit ratings. There are a number of factors other than your credit that affect the interest rate including your down payment amount and the number of points you pay at closing. The larger your down payment, the better your rate will be. You can also negotiate with the lender to pay discount points and buy down your interest rate.

The debt-to-income ratio and the loan-to-value ratio of your home is another important factor mortgage lenders consider when approving your application. Your debt-to-income ratio is derived from the amount of your debts (student loans, car payments, credit cards, etc.) and your income. The lower your debts are and the higher your income, the lower your interest rate will be.

The Internet is an excellent tool for comparing loan offers from a variety of mortgage lenders. Using the Internet you can quickly locate and compare rates and fees from dozens of mortgage lenders. Comparing offers from a variety of these online lenders will help you find the best loan offer. Remember that you need to compare all aspects of the mortgages you consider, not just the interest rates. Request a copy of the Good Faith Estimate for each loan you consider and compare all lender fees and closing costs to determine which loan is more competitive.

You can learn more about your mortgage refinancing options by registering for our free mortgage guidebook: “Mortgage Refinancing: What You Need to Know.”

A second mortgage loan with interest only payments is a loan that does not have fully amortized payments for the entire duration of the loan. This means for the interest only period specified in your loan contract your monthly payment will be significantly lower and based solely on the interest due that month. The interest only period of this type of loan varies between one and five years depending on the lender.

The main advantage of this type of home equity loan is that you can get your hands on the cash you need with very low payments for a period of time. The disadvantage of this type of mortgage is that when the interest only period ends, the payments will be fully amortized based on the time left on the mortgages term. This means that if you took out a fifteen year interest only second mortgage with a five year interest only period, after the first five years are up your payment will be based on a ten year repayment schedule. What this means for you is a higher monthly payment amount at the end of the interest only period.

Interest only loans make good financial sense if you know you will be selling or refinancing before the end of the interest only period. This allows you the benefit of low payments without the risks associated with adjustable interest rate loans. If you plan on keeping the loan it is important to realize that your payments will be much higher at the end of the interest only period and to budget accordingly. A second mortgage loan is secured by your property just like your primary mortgage; if you fall behind on the payments your lenders could foreclose and take your home. You can learn more about your mortgage and home equity options by registering for our free mortgage guidebook: “Mortgage Refinancing: What You Need to Know.”