Mortgage Refinance Guide

There may come a time throughout the life of your home loan in which you decide to refinance or would like to know how to refinance. The more you know about refinancing your mortgage the better off you will be. Here are the steps you will need to take when you are ready to refinance your home loan to make sure it is the right thing for you.

Step One: Do Your Research

Learn as much about refinancing as possible before you begin the process. Basically, when you refinance a home loan it means that you will be receiving a new home loan that will be used to pay off the original mortgage that you owe. This can benefit you in several ways such as lowering your interest rates which will reduce the overall amount that you owe and it can also reduce your monthly payments. In some cases it can even shorten the length of the loan. You should also learn about your credit history because it will be a factor in determining the interest rates you can receive. The better your credit the lower rates you can expect.

Step Two: Compare Mortgage Lenders

Before you choose a lender to use for refinancing you need to take some time to compare different ones to see what they have to offer. You will find that there is a big difference between lenders and comparing these differences will help you make an informed decision. Here are a few of the things that you need to take into consideration. Look at the interest rates and fees that you will be charged for using that specific lender. Carefully consider the terms of the mortgage. Keep in mind that it may be possible for your current lender to offer you a better deal than anyone else so don’t exclude them when comparing lenders.

Step Three: Use Caution

Before you refinance your home loan you need to make sure that you will actually be benefiting yourself in the end. Go over all the details and make sure you know exactly what you will be paying before you accept the new loan. If you will not be saving any money when all is said and done, then it would be pointless to take out the new loan.

Refinancing your home loan can be very beneficial provided you follow the steps above to ensure you receive the best offer possible. You may even be able to borrow a little extra with the new loan that will allow you to do some remodeling or consolidate your higher interest debts and gain a tax deduction.

Many homeowners have a difficult time choosing which type of loan is best when refinancing their homes. Taking out a new 30 year fixed rate cookie cutter mortgage every time you refinance may not be the best move for your situation. Here are several tips to help you make sense of the different mortgage products available and choose the right loan for your situation.

How Long Do You Plan on Keeping Your Home?

The first question you need to answer when deciding to refinance is how long you plan on keeping your home. Because there are expenses involved when taking out a new mortgage loan you will need time to recoup this money. If you sell your home prior to recouping this expense you will lose money by taking out a new loan. You can easily determine your breakeven point by dividing the amount you will pay in fees and closings costs by how much lower your monthly payment will be. This will tell you the number of months it will take to recoup your refinancing expenses with the lower payment amount.

What Interest Rate And Term Length Should You Choose?

Choosing a 30 year fixed rate loan when refinancing is not a good idea for most homeowners. Refinancing your mortgage with a 15 year loan allows you to build equity in your home at a much faster rate. Choosing an adjustable rate loan could allow you to take advantage of lower mortgage rates. Mortgage interest rates are still very low; however, you should weigh your tolerance for financial risk before choosing a mortgage with a variable interest rate.

What Are Your Objectives For The New Mortgage Loan?

Do you need a loan with the lowest possible payment or would you like to pay the mortgage off as quickly as possible? If you can tolerate a fair amount of financial risk and need the lowest possible payment an interest only adjustable rate mortgage could be right for you. Interest only mortgages have payments based only on the amount of interest due in a given month; however, these mortgages do not remain interest only forever. At the end of the interest only period your lender will recast your loan to a standard Adjustable Rate Mortgage amortized for the time remaining in your loan term

Amortized? What Does That Mean?

Amortization is just a fancy word for describing how your mortgage balance is paid down over time. Mortgage loans are front loaded with interest so at the beginning of your loan the majority of your mortgage payment is applied to the finance charges. Over time this reverses as the interest is paid down and more of your payment is applied to the loan balance. Because mortgage loans are front loaded in this manner it is best for you to find the lowest rate possible when refinancing. You can do this by avoiding broker markup of your mortgage rate and other garbage fees.

You can learn more about how to refinance a mortgage by registering for our free video tutorial. The videos are yours free and will show you how to save thousands of dollars refinancing your home with a wholesale mortgage rate while avoiding garbage fees.

No fee mortgage refinancing simply doesn’t exist. You’ll see advertisers on television like Bank of America bragging about their no cost, no fee mortgages; however, no cost mortgage refinancing is a lie. Here is the truth you need to know about no fee mortgage refinancing to prevent falling victim to these empty promise of no fee mortgage loans.

Every mortgage loan sold today has closing costs and fees that have to be paid one way or the other. When an advertiser claims that their loans have no fees, they are not telling you the whole story. Mortgage closing costs get paid in one of three ways:

You can pay cash at closing.

You can roll the costs into your loan balance.

You can take a higher mortgage rate instead.

In the case of “no fee” mortgage you see advertised on the radio and television you are taking a higher mortgage rate in exchange for the lender covering your costs. This is also true of the “low flat fee” mortgages you see advertised by companies like Ditech. There are always closing costs including those paid to third party companies when taking out a mortgage. When you fall for one of these “no fee” mortgage loans your lender is locking your mortgage rate high enough to pay your closing costs.

You might be asking how a higher mortgage rate could cover your closing costs. The reason this happens is what’s known as the mortgage industries dirty little secret. Yield Spread Premium is the industry term for the fee wholesale lenders pay for closing loans with above market mortgage rates. The higher mortgage rate you agree to pay when refinancing, the more profit your lender makes when the loan is sold to investors on the secondary market. This is why lenders pay a commission to loan originators for closing loans with above market rates.

Lenders that you see advertising “no fee” mortgage loans are simply using this fee to pay your closing costs. Banks do the same thing as other mortgage lenders they just give it a different name. You are simply agreeing to a higher mortgage rate which results in a higher payment amount every month that you keep the loan to avoid paying closing costs. What’s wrong with using Yield Spread Premium to pay closing costs?

Yield Spread Premium Can Be Avoided

This markup of your mortgage interest rate is not only completely unnecessary, but is dishonest. It is possible to pay a reasonable fee for loan origination and refinance your mortgage with a wholesale rate. A reasonable origination fee to pay is one percent of your mortgage amount and there are honest mortgage brokers willing to work for that. Sure you’ll have to pay closing costs; however, if you plan on keeping your home refinancing with a wholesale mortgage rate can save you thousands of dollars in the long run.

You can learn more about refinancing your mortgage with a wholesale mortgage rate while avoiding broker and lender junk fees with a free mortgage refinancing DVD. Click the DVD image at the top of this page to order your free copy today.

If you are in the market to refinance your existing home mortgage you might be considering the pros and cons of a fixed rate mortgage over their adjustable rate counterparts. Fixed rate mortgage loans can give you financial peace of mind knowing that your payment will not change over time; however, this peace of mind comes at a price. Fixed rate mortgages come with higher interest rates than similar adjustable rate mortgages. Here are several tips to help you decide if fixed rate mortgage refinancing is right for you.

Fixed rate mortgages are exactly what their name implies; a mortgage with an interest rate that does not change over the duration of the loan. This is a great loan option for homeowners in need of consistent financing for a long period of time. The peace of mind offered by fixed rate mortgages comes from the fact that your payment amount and finance charges remain constant regardless of what’s happening with the economy or if mortgage rates skyrocket.

This consistency of payment amount and mortgage rate is an advantage when interest rates are rising; however, when interest rates go down homeowners can choose to refinance it paying the expense of a new mortgage is beneficial. Many homeowners rush out and refinance their fixed rate loans at the first dip in mortgage rates without considering how long it will take them to recoup the expense of taking out a new mortgage loan. All mortgages come with fees and other expenses; you should evaluate refinancing on a cost and savings basis before going forward with a new mortgage. Never let your bank or mortgage broker pressure you into refinancing without doing this cost/savings analysis.

Fixed Rate Mortgages Are More Expensive

Having financial peace of mind will cost you. In almost every case a fixed rate mortgage is a more expensive option than a similar adjustable rate mortgage, at least initially. This means you can expect to pay on average .5 to 1.5 percent more than an adjustable rate mortgage, which translates to a higher monthly payment. Fixed rate mortgages are higher because the lenders assume greater risk of higher rates when locking you in at a fixed interest rate.

Is Fixed Rate Mortgage Refinancing Right For You?

The answer to this question depends on your individual situation, including your tolerance for financial risk. If you purchased your home with one of those risky option or interest only mortgages and are facing a higher payment when the lender resets your loan a fixed rate mortgage could be right for you.

If you need a lower payment and can tolerate some risk with your finances, consider a hybrid adjustable rate mortgage which allows you to take advantage of a lower fixed rate period before the lender starts adjusting your mortgage rate.

You can learn more about your fixed rate mortgage refinancing options, including expensive pitfalls to avoid like paying retail markup on your mortgage interest rate, by registering for a free refinancing tutorial.

Mortgage refinancing can be a confusing process for many homeowners. Mortgage loans are retail products like the appliances in your kitchen and refinancing is not so much choosinig a lender as picking a loan originator. Here are several tips to help you find a loan originator that won’t take advantage of you when refinancing your mortgage.

What is a Mortgage Loan Originator?

Your loan originator is the person arranging your loan and handling the paperwork. This person could be a mortgage broker, loan officer at the bank, or a representative at a mortgage company. Finding the right person to originate your loan will make the difference between getting a good deal and making an expensive mistake.

Who should you choose to originate your mortgage? You can scratch the loan officer at your bank off the list right away, and for good reasons. Banks are exempt from the Real Estate Settlement Procedures Act that protects homeowners by requiring lenders to disclose their profit margin and markup on your loan. Because banks are not required to play by the same rules as other lenders you’ll never know how much they mark up mortgage interest rates.

If we eliminate banks, you have the choice of refinancing with a traditional mortgage company or a broker. Mortgage brokers have access to wholesale mortgage interest rates and an honest broker is more likely to refinance your mortgage with a wholesale rate than a mortgage company representative. The downside of working with a mortgage broker is that these individuals are paid by commission and giving you a wholesale interest rate doesn’t yield the best commission.

What Are Wholesale Mortgage Rates?

Wholesale mortgage rates come from wholesale lenders. Your loan originator is what makes mortgage rates “retail.” Loan originators mark up mortgage rates because the lender pays them a commission of one point for every quarter percent you agree to overpay. Suppose you qualified for a 6.0% mortgage rate but your broker quotes you 6.5%. If you agree to this loan your originator pockets two percent of your loan amount on top the origination fees they’ve already charged you.

Yield Spread Premium is Unnecessary Markup

The difference between the wholesale mortgage rate you were approved and the rate you close after markup is called Yield Spread Premium. This unnecessary markup of your mortgage interest rate only serves to boost your broker’s commission at your expense. Many brokers try and explain away Yield Spread Premium as “lender paid fees,” telling you not to worry about it because it’s not coming out of your pocket. Don’t fall for these lies; you’re agreeing to an above market interest rate and it is coming out of your pocket.

You can learn more about refinancing your mortgage with a wholesale rate with my free mortgage tutorial. Simply click the DVD image at the top of this page to get started today, free with no obligation.