Home Mortgage Refinancing Guide

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.

Annual Percentage Rate (APR) is an interest rate that factors in costs and fees for your mortgage loan in addition to the mortgage rate. APR is expressed as a yearly rate of interest and was intended to give you an idea of the total cost of borrowing. Annual Percentage Rate is not the mortgage rate your payments are based on.

The Annual Percentage Rate was supposed to make choosing a mortgage loan easier because you could use the figure to determine which loan had the lowest overall costs. If the loan’s mortgage rate and APR were low you could assume the lender fees were low as well.

The problem is while Truth in Lending laws require that mortgage lenders disclose the APR for their home loans, there are no standard rules for calculating the Annual Percentage Rate. This means mortgage lenders can more or less pick and choose which fees they include in the calculation. This makes the Annual Percentage Rate more of a marketing tool for lenders and all but useless for determining which loan offer is a better deal.

You can learn more about a better way to shop for a mortgage loan by registering for the free mortgage videos available on this website.

Cash out mortgage refinancing is a less expensive option for tapping into your equity than home equity lines of credit or second mortgages. Here is the basic definition of a Cash Out Refinance.

Suppose for example, your home is valued at $350,000 and you owe $150,000 on your existing 30 year, fixed rate mortgage. It is possible for you to borrow as much as 90% of your home’s Loan-to-value ratio (LTV). This means you could borrow as much as $315,000 when cash out refinancing and put $165,000 in your pocket.

There are closing costs and some fees you’ll be required to pay when refinancing; also, because you are borrowing against the equity in your home you’ll get a higher mortgage rate than if you weren’t taking cash back at closing. There are also other considerations you’ll need to keep in mind when considering cash out refinancing. Because your mortgage rate will be higher when you take cash back, any amount of Yield Spread Premium on your loan will raise your monthly payment amount unnecessarily.

Yield Spread Premium is the unnecessary markup of your mortgage interest rate for the person arranging your mortgage loan. If you’re not already familiar with how Yield Spread Premium works, here is a simple example to illustrate how it drains your wallet unnecessarily. Suppose you are borrowing $350,000 to refinance your home mortgage. The broker quotes you a mortgage rate of 6.5% and charges you a loan origination of 2.0%.

In this example you will be required to pay your mortgage broker $7,000 at closing for their part in arranging your loan. What you don’t know is that you actually qualified for a 6.0% mortgage rate and the broker marked it up to get a commission from the lender…on top of the $7,000 you’re already paying them! Your monthly payment at 6.5% on this loan will be $2,213. If you had the mortgage rate you deserve at 6.0% your payment would only be $2,090. That’s a difference of $1,476 you’re overpaying every year!

The good news for you is that Yield Spread Premium can be avoided when refinancing your mortgage. You can learn more about this and avoiding lender junk fees by registering for the free mortgage videos available on this web site.