Home Mortgage Refinancing Guide

Your mortgage payment that includes loan Principal, mortgage Interest, property Taxes, and homeowner Insurance is commonly referred to as PITI. Payments of this type are often paid through an escrow company. Your mortgage lender will receive the loan principle an interest to pay down your mortgage loan.

The escrow company will then pay your homeowners insurance policy premiums and property taxes. Lenders often structure loans in this manner to reduce their risk by ensuring your homeowners insurance and property taxes are paid in a timely manner.

The insurance and taxes portion of your monthly payment is not paid to the lender although they may hold it until the payments are due. This allows the lender or Escrow Company to collect interest on your money. Suppose for instance the property taxes on your home are $3,000 per year. You will pay $250 per month in addition to your Principle and Interest for the Taxes. The lender or Escrow Company will hold your money until the year’s end when it will be paid to the County for your Property Taxes.

If you financed your home with a fixed mortgage rate the Principal and Insurance portion of your payment will not change from one year to the next. It is likely that your Taxes and Insurance will change when your insurance policy is renewed or the property taxes on your are reassessed. It is a good idea to anticipate these increases and allow room in your budget for the changes.

Escrow Companies are notorious for not keeping up with changes in your Property Taxes and Insurance. If this happens you could receive a bill for the asking you to bring your escrow shortfall current. This money isn’t going to your lender but is being used to make up the difference in the higher amount of your Property Taxes and Homeowners Insurance. You can avoid a shortfall in your escrow account by notifying the Escrow Company whenever you receive a change in your insurance policy or tax information from the county you live.

Locking in your mortgage rate is when the lender backing your mortgage secures the money for your loan at a specific interest rate, term length, and dollar amount. A typical rate lock period is for thirty days but it is possible to lock your interest rate for more or even less time. Keep in mind that the longer you lock your rate, the more it will cost you when all is said and done with your loan.

The process of mortgage rate locking starts between you and your mortgage broker or loan officer. When you choose to lock in your mortgage rate the broker or loan officer contacts the wholesale lender to lock the rate. If you are dealing with a loan officer from Wells Fargo bank for example, they will lock the rate with Wells Fargo Mortgage. If you are working with a mortgage broker they will lock with the wholesale lender they are arranging your loan with. That wholesale lender will then secure money for your loan from the secondary mortgage market.

Keep in mind that even though you’ve locked your mortgage rate and the lender has reserved funds for the loan you are not yet obligated to take out this loan. (See your three day rescission rights for more on this)

Once the wholesale lender confirms your loan from the secondary mortgage market, a written lock confirmation is issued by the lender and sent to your mortgage broker or loan officer. This rate lock shows everything about your loan including any Yield Spread Premium or commission being paid to the broker for marking up your mortgage rate. If you do not receive written confirmation of your rate lock then you have not locked your mortgage rate. Verbal rate locks are meaningless and could cost you a higher rate on your loan.

You can learn more about locking in your mortgage rate and other tips to avoid paying too much for your next mortgage by registering for the free video tutorial on this site.

Balloon mortgages are home loans that have a payment schedule based on long term repayment but have the entire balance due after a shorter period of time. As an example a seven year balloon mortgage would have payments based on a 30 year term length but the entire remaining balance will be due after seven years.

Taking out a balloon mortgage is a common way of getting lower mortgage rates and monthly payments than you could with a traditional 30 year fixed rate loan. Similar to an Adjustable Rate Mortgage, balloon mortgages shift much of the risk from the lender to you in exchange for a lower mortgage rate. The problem is that if you are unable to pay off the entire loan balance when the balloon payment is due or refinance you risk losing your home.

The risk associated with balloon loans and Adjustable Rate Mortgages is referred to as mortgage rate risk. This is the risk to the mortgage lender when giving you a rate without knowing what mortgage rates will be doing down the road. Lenders lose out on potential income by locking in your mortgage rate…Adjustable Rate Mortgages circumvent this risk by adjusting your payment amount should mortgage rates go up. Balloon payments reduce risk to the lender by requiring the loan be paid back in short periods of five to seven years. Because the balance of the loan is due with the balloon payment the lender can refinance at a higher mortgage rate.

If you are considering a mortgage with a balloon payment to get a lower interest rate you should consider how future mortgage rate increases could affect your monthly payments and your budget. Because most of your payment with balloon mortgage loans is applied to interest you will be building very little equity in your home; balloon mortgages should only be considered as a stopgap measure until more reasonable financing can be secured.

Many homeowners get themselves into trouble with declining home values when they find themselves upside down, owing more than their home is worth when the balloon payment is due. If you are upside down and owe a balloon payment it will be extremely difficult if not impossible to refinance or sell your home. Homeowners in this situation find themselves facing foreclosure…this is the risk you face when using a balloon mortgage loan.

You can learn more about your mortgage refinancing options including pitfalls to avoid like balloon mortgages and junk fees by registering for the free mortgage videos on this web site.

Your home loan’s amortization schedule is the breakdown of repayment necessary to pay off your mortgage loan. There are two parts to your mortgage payment: loan principle that pays down your balance and loan interest. Your amortization schedule shows you how much of your payment is applied to the loan principle and how much is paid to interest over time.

One of the disadvantages you should be aware of when refinancing your mortgage is that you will be starting your amortization schedule from the beginning every time you refinance. Refinancing slows the growth of equity in your home because most of your mortgage payments will be applied to loan interest. Still, mortgage refinancing can be advantageous if you are reducing your payment amount with a lower mortgage rate.

If you are refinancing your home loan, the mortgage rate you receive is one of the most important aspect of your loan. One of the most important aspects of your refinancing mortgage rates is whether or not the person arranging your loan is generating a commission for them self by marking up your mortgage rate. Here are the basics you need to know about mortgage rates when refinancing your mortgage to avoid paying too much.

Mortgage rates are the most familiar aspect of refinancing; however, the overwhelming majority of homeowners do not understand how mortgage rates work. In fact, this is so bad in the United States that the Secretary of Housing and Urban Development recently announced that American homeowners will overpay nearly sixteen billion dollars this year alone!

Because your mortgage rate is the means to a better commission by the person arranging the loan most people never get the mortgage rate they deserve. You can refinance with mortgage rates you deserve by investing a little time doing your homework and learning about something called Yield Spread Premium.

Yield Spread Premium and Your Mortgage Rates

The commission paid by a wholesale lender to the person arranging your mortgage is known as Yield Spread Premium. This fee is paid in addition to any origination fees you are already paying, probably even overpaying, for this person’s services in arranging your home loan.

Yield Spread Premium is paid at one percent of your loan amount for every quarter percent your refinancing mortgage rate is marked up. The problem with this markup is that it artificially inflates your monthly payment. To learn more about avoiding this unnecessary inflation of your mortgage payment and other junk fees when refinancing, register for the free videos available on this web site.