Home Mortgage Refinancing Guide

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.

Mortgage Insurance, also known as Private Mortgage Insurance (PMI) can add hundreds of dollars to your monthly payment amount with no benefit to you, the homeowner. Here are the basics you need to know about mortgage inurance whether you are purchasing your home or refinancing an existing loan.

Mortgage insurance is typically required if you have less than a 20% down payment or are taking out an FHA mortgage loan. This policy is separate from your homeowners insurance and can be paid upfront or on a monthly basis. The amount of your premiums depends on a number of factors including your loan to value ratio, credit history, and type of mortgage loan. If you are already paying for Private Mortgage Insurance you can have the policy cancelled once you reach 20% equity and have all your payments current.

When you take out a mortgage the appraisal is part of the package sent to underwriting at your lender. It doesn’t matter if the mortgage is to purchase your home or to refinance, you must have a recent appraisal in order for the lender to approve your home loan.

Mortgage appraisals use a market comparison to determine the value of your home. The appraiser will compare the recent sale price of three similar properties in your area to determine your home’s value. A “similar” property is one with the same amount of square feet, bed and bathrooms, features, property age, and geographic area. The similar properties also need to have sold within the past six months.

If you’re refinancing your mortgage will you always have to get a new appraisal? Not necessarily; if your appraisal is fairly current, usually within the past two years, your broker may be able to work around you paying for a new appraisal.

Declining Property Values

After the real estate bubble burst many homeowners across the country found their property values declining. In many areas of the country homeowners found they did not have enough equity in their homes to qualify for refinancing after the lender ordered a new appraisal. If this is your situation and you have an adjustable rate mortgage that is scheduled to reset soon and you will no longer be able to afford the payments the FHASecure program may be able to help you qualify if your payments are current.

FHA mortgages are a type of government backed home loan. While FHA mortgage loans have been around for some time, the program was recently expanded to include FHASecure loan offerings to assist homeowners with adjustable rate mortgages that they can no longer afford. Here is the basic definition of FHA Mortgage Loans.

Before the credit meltdown FHA mortgages were become less popular and members of congress were even discussing scrapping the program due to low interest rates and the ease of qualifying for traditional mortgage loans. Now with all of the trouble in the mortgage industry FHA mortgages are back in vogue for borrowers with marginal credit and low income. The downside of an FHA home loan is that they require a three percent down payment and you will be required to purchase Private Mortgage Insurance, which will raise your monthly payment.

Just because you qualify for an FHA backed mortgage loan don’t think you’re protected from shady lenders and mortgage brokers. In fact, the Private Mortgage Insurance included with your FHA mortgage loan only protects the lender from losses if you default on the loan. There is no protection for you from junk fees and commission based markup of your mortgage rate! The only way to protect yourself from paying too much with your FHA mortgage loan is to do your homework and find the right person to originate your loan.

You can learn more about finding the right mortgage broker to arrange your FHA home loan without paying junk fees and the hidden markup known as Yield Spread Premium by registering for the free mortgage videos found on this website. Register today, the videos are yours free with no obligation.

The HUD-1 Settlement Statement is one of the most important loan documents you will encounter when taking out a mortgage loan. The information on your HUD-1 can make the difference between getting a good home loan and overpaying thousands of dollars.

The HUD-1 Statement shows buyer fees, seller fees, lender fees, broker fees and markup and any third party closing costs. If you are refinancing your mortgage loan, you and your closing agent will be the only ones signing the HUD-1 statement. While the Good Faith Estimate is a weak approximation of what you can expect to pay for your mortgage loan, the HUD-1 is the final word on what you will pay. Good Faith Estimates have become little more than a marketing tool to attract borrowers with bait-n-switch tactics.

One of the most important items you’ll find on your HUD-1 is Yield Spread Premium, or the mortgage broker rebate. This is a fee paid to the broker by the lender for marking up your mortgage rate. If there is any Yield Spread Premium associated with your mortgage you can be sure that you’re paying more than you should. You can learn how to avoid Yield Spread Premium and other junk fees by registering for the free mortgage videos on this site.