Mortgage Refinance Guide

If you’re considering refinancing your mortgage and have less than perfect credit, there are steps you need to take before applying to improve your credit. Mortgage approvals are becoming more difficult these days even for homeowners with good credit. If you are going to have your application for refinancing approved you will need to improve your finances not only to get approval, but to qualify for the lowest possible mortgage rate. Here are several tips to help you refinance with bad credit.

Check Your Credit History First

The first thing you’ll need to do before contacting a mortgage broker is to request copies of your three credit reports and carefully check for errors. Your credit records are maintained by three separate companies that do not always share information. These three credit agencies are Equifax, Experian, and Trans Union. You don’t have to pay for these reports as Congress passed a law requiring each of them to provide you with one free copy of your credit history every 12 months. You can request these free credit reports by visiting the website annualcreditreport.com.

Dispute Inaccurate Information

If you find mistakes in your credit history you’ll need to dispute the error and allow enough time for the correction to be reflected in your credit score. It is not uncommon to have mistakes with one credit agency that are not reflected in the other credit agencies. Mistakes are common so it is very important to review your credit reports every year and follow that credit agency’s procedure for disputing inaccurate information as quickly as possible.

Pay Your Bills on Time

Late payments kill your credit score. Always make your payments on time, especially your mortgage payment. When paying your credit cards make sure you pay at least 20% more than the minimum payment that is due in a given month. Pay your credit cards down to at least 50% of the available balance. You can shuffle balances around between cards that have balances less than 50% if you don’t have the cash on hand to pay your cards down.

Work With a Mortgage Broker

Mortgage brokers have access to programs that you might not be able to find on your own. A good mortgage broker can help you not only improve your credit but can often work around your financial shortcomings to get your loan approved. You have to be careful when choosing the right person as brokers work for a commission and the loans that bring them the largest commissions are not necessarily the best loan for your situation. You can learn more about finding the right person to originate your mortgage without paying too much by registering for my free mortgage video tutorial.

The first thing you should know about getting the best deal when refinancing your home loan is that you cannot bypass the middleman to get a wholesale rate. It doesn’t matter which wholesale lender you try and contact when refinancing…every lender has retail divisions that deal with the public. Here are the basics you need to know to qualify for a wholesale mortgage rate when refinancing your home loan.

You’ll Have to Use a Broker

If you want wholesale rates there’s no way around working with a mortgage broker. Banks and credit unions never offer their customers wholesale rates and the big Internet lenders you see are simply banks pretending to be something they’re not. So what is a mortgage broker?

Mortgage brokers are simply loan originators that do not fund the loans they close with their own money. They are basically salespeople reselling mortgage loans for wholesale lenders. Your mortgage broker gets paid by charging you an “origination fee” and from a “rebate” paid by the wholesale lender. Lenders reward mortgage brokers for marking up the interest rate you qualified and closing your loan with above market rates. This rebate paid by the lender is called Yield Spread Premium and you’ll need to avoid it if you want to refinance with a wholesale rate.

How Yield Spread Premium Works

Suppose the mortgage you are refinancing is for $300,000. Your mortgage broker locks and closes your loan with a mortgage rate of 6.5%; however, what the broker doesn’t tell you is that you qualified for 6.0% mortgage rate. Because your mortgage broker locks and closes your home loan .5% higher than necessary this creates 2% of Yield Spread Premium for the broker. Your mortgage broker pockets $9,000 in addition to the fees you’re already paying for overcharging you.

Finding the right mortgage broker to originate your home loan without lining their pockets with Yield Spread Premium is a skill you can easily learn. Give me an hour of your time and I’ll show you how to refinance your home with a wholesale mortgage rate without paying garbage fees with free videos…Register for yours today.

If you’re considering refinancing your mortgage there are a number of reasons for taking out a new home loan.

Some people choose to refinance because of a financial hardship, others want to borrow cash against the equity in their homes; however, the most common reason is to get a lower monthly payment.

Here are several tips to help you get that lower payment and take back control of your paycheck.

How to Get Lower Mortgage Payments

The method you choose to lower your mortgage payment depends on your situation and your financial goals. Here are four of the most common methods used to get a lower monthly payment:

I. Extend the term length of your new home loan.

The easiest way to lower your monthly payment is to take your current mortgage balance and stretch it out over a longer amount of time. Suppose for example that you purchased your $300,000 home at seven percent five years ago and want refinance the balance of $280,000. Your current monthly payment is $1,200; however, refinancing with a 6.5% interest rate over forty years would lower payment to $850…a savings of $350. Keep in mind that by extending the term length of your loan you will be paying more to the lender in the long run for your financing.

II. Choose an Adjustable Rate Mortgage with a lower mortgage rate.

A short term fix for many homeowners is to choose an adjustable rate mortgage. If you expect your income to increase in the near future or plan on selling your home within a few years a hybrid ARM could be a sure fit. Hybrid Adjustable Rate Mortgages have the advantage of a fixed rate period that lasts as long as five years before the lender starts adjusting your mortgage rate. Hybrid Adjustable Rate Mortgages are an excellent way to take advantage of lower adjustable rate loans while protecting yourself from economic uncertainty.

III. Consider Interest Only or Option Adjustable Rate Mortgage Loans

If you’re interested in the lowest possible payment amount option ARMs, while risky, provide the lowest possible minimum payment. The problem with this type of loan is that if you only make the minimum payment amount every month you’re not paying enough to cover all of the interest due that month. The unpaid interest is simply added to your loan balance which results in a mortgage that actually grows over time. This is a bad thing. If you want to limit your risk but need a lower payment than a traditional ARM, consider an interest only loan.

IV. Borrow Against Your Equity to Take Back Your Budget

Cashing out the equity in your home to pay off other bills could be the solution for a budget that is out of control. When you refinance your mortgage and take cash back to pay off other bills you get to deduct the interest paid on this debt from your taxes.

Getting the lowest possible payment when refinancing can only happen if you qualify for the lowest mortgage rate. The mortgage quotes you receive shopping on the Internet and by calling your mortgage broker all include commission-based markup. If you want the lowest possible payment you’ll need to qualify for a wholesale mortgage rate…you can learn more about refinancing wholesale without paying junk fees with our free mortgage video tutorial. Register today while this is still a free offer; you’ll get immediate access to the videos on your PC and free live support to answer any questions you have.

Since mortgage rates have been in near freefall this week several people have asked me about breaking mortgage rate locks. Here’s the skinny you need to know about locking in your mortgage rate.

While most mortgage brokers will tell you that a rate lock is an agreement between you and the lender that you cannot walk away from, the truth is that you can and the pressure you mortgage broker is applying is a load of crap. Can’t say that I blame them, after all their commissions are on the line…but the truth is you can walk away from the table at any time…Even After You’ve Signed The Contract.

Mortgage Rate Locks

What is a mortgage rate lock? Really all rate locks are is a “promise” from your lender to give you a certain mortgage rate if you close before the lock expires. Are mortgage lenders obligated to honor their rate locks?

The answer may surprise you… No, lenders are not obligated to honor thier own rate locks. Mortgage lenders build so much wiggle room into their rate locks they can back out of them almost at will. You’re not signing a contract when you lock in your mortgage rate but if rates go down 99% of lenders will not give you the lower rate.

If your mortgage lender refuses to give you the lower rate why should you stay? A mortgage is a huge financial commitment and you should make sure you’re getting the best possible deal before signing on the dotted line. Don’t ever let a mortgage broker or lender pressure you into thinking that since you’ve locked in a mortgage rate you’re obligated to take out the loan. This type of pressure sales is not only unethical but a despicable practice.

Your Rights Under The Law

You can walk away from the table at any time. If you’re being pressured by a broker or your gut tells you something isn’t right, walk away. Mortgage brokers and lenders are a dime a dozen and there are honest people working in this industry that want to get you a good deal in exchange for your business. What can you do if you already signed the loan contract? You still have time to change your mind. There are three business days before your loan is funded that you can change your mind and walk away from the deal. See Three Day Rescission for more information about backing out before your loan is funded.

To summarize, a rate lock does not mean you are obligated to borrow. Never let anyone pressure you into any type of loan…this is a sure recipe for disaster. Do your homework, learn about Yield Spread Premium and make informed decisions when it comes to your mortgage. All the information you need to do this is available for free on this website. There is absolutely nothing for sale here…the articles and mortgage videos are all free.

If you are in the process of refinancing and are considering interest only mortgages, there are several things you should know to reduce your risk. Interest only mortgages are suitable for homeowners that need a low monthly payment for a short period of time; however, these loans are often abused by people who don’t understand how they work. Here are a several tips to help you decide if refinancing with interest only mortgages is right for you.

Adjustable Rate Mortgages 101

Interest only mortgages are a type of Adjustable Rate Mortgage. These loans are called “adjustable” because the lender periodically changes the interest rate to the loan’s index plus their margin. Adjustable Rate Mortgages are based on a number of different indexes ranging from the Federal T-bills to the London Interbank Offered Rate Index. The index that your interest only mortgage is tied to will be specified in your loan contract. Margin is your lender’s markup of the index for a profit; the amount of margin on your loan is determined by your credit and the lender you have chosen. When shopping for any Adjustable Rate Mortgage it is important to compare the margin from one lender to the next because this markup has an impact on your monthly payment amount.

Interest Only Adjustable Rate Mortgages

Interest only mortgages are a special type of Adjustable Rate Mortgage where your payment amount in the beginning is based only on the amount of interest due that month. Because you’re only paying the interest due, during the interest-only period you will not pay down any of your loan balance. What many homeowners don’t realize is that the interest only period does not last forever. Eventually the lender is going to want their money back and when this happens your mortgage payments will go up.

The length of your interest-only period is specified in your loan contract and typically lasts for up to five years. When the lender resets your loan you will have a mortgage payment amortized for the time remaining in your loan contract. Suppose for example that you take out a 30 year, interest only adjustable rate mortgage with a 5 year interest only period. At the end of the interest only period your payments will be based on a repayment period of 25 years. This means your payments will be much higher than a standard 30 year, adjustable rate mortgage.

As long as your budget can support the new, higher payment amount you shouldn’t have a problem when the lender resets your mortgage. Payment shock occurs for homeowners who are not expecting the higher payment because they don’t understand how interest only mortgages work and their budgets cannot support the payments. If you find yourself in this situation you could be facing foreclosure in as little as 120 days if your mortgage payment becomes too much to manage.

Refinancing as an Option

At the end of your interest only period you do have the option of refinancing before your payments go up. By choosing another interest only mortgage or opting for a less risky hybrid adjustable rate mortgage you can minimize your risks of payment shock while taking advantage of the lower rates offered by interest only mortgages.

You can learn more about your mortgage refinancing options, including strategies for minimizing your risk and avoiding lender junk fees by registering for a free video tutorial. These videos were produced by a retired mortgage broker and will show you how to refinance with a wholesale mortgage rate without paying too much. Click here to register for your free mortgage videos.