Home Mortgage Refinancing Guide

If you are a homeowner that recently purchased your home with an interest only mortgage and are concerned about your payment amount when the interest only period ends, you might consider refinancing the loan. There are a large number of people who purchased their homes using interest only mortgages because of the ease of qualifying; however, many of these homeowners do not fully understand how the loans work. If your interest only loan is due to be converted by the lender, you can expect your payments to go up significantly when this happens.

Should You Refinance Your Interest Only Mortgage?

Many homeowners with interest only mortgages expected their income to go up in the years before their loan is converted. If that increase never came and your budget is already stretched to the limit, refinancing to a fixed interest rate loan could be the only option to keep your home. Choosing a mortgage with the longest possible term length may give you a monthly payment amount that is lower or equal to what you are currently paying.

Save Money When Refinancing Your Interest Only Mortgage

Mortgage interest rates are still very low; if you invest some time researching mortgage lenders and shopping for the most competitive loan offer you can save yourself thousands of dollars when refinancing the interest only mortgage. When you compare loan offers it is important to compare all the fees and closing costs, and not focus entirely on the interest rate. The best way to compare loan offers is to request a Good Faith Estimate from each mortgage lender you consider. Mortgage lenders are required to provide the Good Faith Estimate after receiving your application; however, most will give it to you for simply asking.

Beware Yield Spread Premium When Refinancing Your Interest Only Mortgage

Whenever you take out a mortgage you run the risk of overpaying for that loan. Mortgage loans are commodity products just like televisions or any other appliance. Mortgage companies and brokers are simply retail vendors reselling mortgage products for wholesale lenders. These retail mortgage companies and brokers routinely mark up the interest rate quoted to you in order to receive an additional bonus from the wholesale lender. This markup by your Mortgage Company or broker is called Yield Spread Premium. Because you are already paying origination fees to the Mortgage Company or broker, any retail markup on your interest rate means you are effectively paying double for the new mortgage loan.

You can learn more about refinancing your interest only mortgage without overpaying by registering for free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

Albuquerque Mortgage