Mortgage Refinance Guide

Refinancing your mortgage with a wholesale mortgage rate can save you thousands of dollars in unnecessary finance charges. By doing your homework before refinancing you will not only learn how to take advantage of the wholesale nature of mortgage interest rates, but learn how to avoid the junk fees added by your broker and lender. Here are several tips to help save you money when refinancing your home mortgage loan.

What are Wholesale Mortgage Rates?

Wholesale mortgage rates are offered exclusively by wholesale lenders. You will never get a wholesale rate form a bank or credit union and the only way to get them is to find a mortgage broker willing to let you. The problem with mortgage brokers is that one of they ways they are compensated for their services is by marking up your interest rate for a commission. This broker added markup is what makes mortgage rates “retail” and is called Yield Spread Premium.

How to Avoid Yield Spread Premium

How do you find a mortgage broker that won’t markup your mortgage interest rate? Yield Spread Premium is a significant part of most brokers’ income; eliminate this and they’re only working for the origination fee you agree to pay them. One of the biggest problems with Yield Spread Premium today is that the fee is not properly disclosed. When questioned about this markup most brokers try and explain the fee away or simply tell you that because it’s not being paid out of your pocket you shouldn’t worry about it.

Every single mortgage broker you encounter when refinancing your mortgage loan knows about Yield Spread Premium and makes an income from it; however, if you agree to a mortgage with this markup you’ll pay thousands of dollars in unnecessary finance charges. There are mortgage brokers willing to work for a reasonable origination fee without marking up your mortgage rate. Many of these brokers belong to a professional organization known as the “Upfront Mortgage Brokers Association.” Members of this professional association agree to conduct themselves adhering to certain professional and ethical standards….meaning they will not mark up your mortgage rate for a commission and hide the fact that they’re doing it.

The Upfront Mortgage Brokers Association maintains a registry of its members categorized by State on its website. You can search for a member in your state by visiting http://www.upfrontmortgagebrokers.org. If you’re living in a State that doesn’t have any members you can still take advantage of wholesale mortgage rates; however, you’ll have to do some negotiating to find the right broker.

Beware Mortgage Broker Junk Fees

In addition to Yield Spread Premium, there are a number of junk fees you’ll need to keep an eye out for when refinancing. If you find anything on your Good Faith Estimate or HUD-1 statement that resembles a “Broker Courier Fee,” “Rate Lock Fee,” Loan Processing Fee,” or “Application Fee” you should question your mortgage broker as to the validity of these charges. The “Rate Lock Fee” is a perfect example of a garbage fee invented by your mortgage broker. No mortgage lender charges a fee for locking in your interest rate; if you find a rate lock fee in your loan documents this fee has been fabricated by your broker and will go straight into their pocket.

You can learn more about refinancing your mortgage with a wholesale interest rate while avoiding ridiculous garbage fees by registering for a free mortgage DVD. Register today; you’ll get immediate access to the membership area and all of the training materials that will save you thousands of dollars on your next mortgage loan.

Until recently FHA mortgage loans have been slipping into obscurity. Congress has even been talking about doing away with the FHA program; however, the recent meltdown of the sub-prime (bad credit) mortgage industry has brought FHA insured mortgage loans back into the spotlight. President Bush has proposed expanding the FHA program this year (FHASecure) to assist homeowners that are struggling with Adjustable Rate Mortgages they cannot afford. If you are considering refinancing your home with an FHA insured mortgage loan here are several tips to help you decide if this type of mortgage is right for you.

FHA mortgage loans are insured by the Federal Housing Administration. The FHA does not lend money; they simply insure your debt. If you qualify for an FHA mortgage your loan will be funded by a conventional mortgage lender. Because your mortgage is insured against default by the government, FHA loans offer significantly less risk for lenders, allowing homeowners, even those with poor credit to qualify for lower mortgage rates.

FHA Mortgage Guidelines

The FHA will accept homeowners with blemished credit… especially if you are working on improving your finances and can document your current situation. There are limits to the amount you can borrow which vary by region of the country but will not exceed the conforming loan limit. In 2007 this conforming loan limit is $417,000. The FHA will not insure interest-only or option Adjustable Rate Mortgages…and probably never will.

If you are a homeowner with tarnished credit and are concerned that the current “mortgage crisis” will prevent you from refinancing before your lender begins adjusting your interest rate and payment amount, FHA backed mortgage refinancing could be your answer.

How is The FHA Program Expanding?

President Bush announced that the FHA program will be expanded to help nearly 250,000 families refinance their mortgages. This program, called “FHASecure” is geared specifically to homeowners that have kept their existing mortgage payments current and have fair or better credit histories. The Federal Housing Administration will also begin risk-based premiums where homeowners with poor credit will pay more for the insurance and these new FHA rules start January 2008.

FHA loans had become increasingly less popular due to the abundance of sub-prime financing available to homeowners with poor credit. The recent implosion of the sub-prime mortgage industry has left many homeowners with poor credit histories unable to qualify for mortgage refinancing. This has created a strong demand for FHA backed mortgage loans.

FHASecure mortgage refinancing will fall under the same rules as the current FHA mortgage program. Homeowners looking to refinance their mortgages under FHASecure will have to meet the program requirements and pay mortgage insurance premiums. These premiums reduce the risk incurred by the Federal Housing Administration when guaranteeing loans made to homeowners with poor credit.

Charging homeowners with poor credit higher premiums on their mortgage insurance will allow the FHA to insure homeowners that would not otherwise qualify due to adverse credit histories. These loans will require that taxes and insurance be paid in escrow to further reduce the risk of foreclosure. Pre-payment penalties or teaser rates are not allowed with FHA backed mortgage loans; however, you still have to worry about Yield Spread Premium…more on this later.

The basic criteria for qualifying for an FHASecure loan is that you must have a history of making your monthly mortgage payment on-time before your loan reset or is scheduled to reset. Your loan must have reset or be scheduled to between June of 2005 and December 2009. You must also be employed, be able to demonstrate a history of employment and have the income necessary to keep your mortgage payments current.

The FHASecure program is intended to help homeowners that may have been tricked into expensive Adjustable Rate Mortgages with teaser interest rates. The agency hopes that the program will bring stability to the mortgage market offsetting the current crisis that threatens to drag the US economy into a recession.

Buyer Beware Still Applies

Many people think that because they qualify for FHA mortgage insurance they don’t have to worry about lenders taking advantage of them. Unfortunately this is simply not true… FHA mortgages are originated like any other loan and are subject to the abuse of Yield Spread Premium. If you’re not already familiar with Yield Spread Premium this is the unnecessary markup your broker adds to your mortgage interest rate to receive a commission from the lender. This markup is frequently added without the borrower’s knowledge or consent.

When you refinance your mortgage with a conventional mortgage loan or one insured by the FHA you will need to find a broker willing to work for a reasonable origination fee without charging you Yield Spread Premium. Negotiating on this simple point could save you hundreds of dollars every month in unnecessary mortgage interest. If you’d like to learn more advice about refinancing with an FHA insured mortgage loan without paying too much, register for this free mortgage refinancing blueprint.

There are a variety of good reasons for refinancing your mortgage. Many homeowners refinance because they want a better mortgage rate, a lower payment, they’re unhappy with the lender, or need to borrow cash from their home equity. These are all valid reasons for refinancing your mortgage, despite the so called “two percent rule.”

The “two percent rule” states that you should never refinance your home mortgage unless the new mortgage rate is two percent lower than your existing rate. The two percent rule oversimplifies the possible benefits of refinancing and is simply bad advice. Many homeowners elect to refinance their Adjustable Rate Mortgages with a fixed rate loan because of the financial risk associated with variable rate loans. Fixed rate mortgages typically come with higher interest rates than their Adjustable Rate Mortgage counterparts so it may not be possible to refinance two percent lower.

Instead of basing your decision to refinance on whether or not you can qualify for a mortgage rate that is two percent lower, you should make your decision based on your needs for the new loan. Refinancing your mortgage will cost you money; if your goal for the new loan is to save money you should consider how long it will take you to recoup your expenses before you realize a savings.

For homeowners looking to cash out equity in their homes a lower interest rate may not be possible; similarly, homeowners refinancing with a shorter term length may not be able to lower their monthly payment. If your goal is to lower your mortgage payment by qualifying for a lower mortgage rate you can calculate how long it will take you to recoup your expenses based on your lower mortgage payment.

To calculate the break even point divide how much it will cost you to refinance including points and settlement fees by the amount you are saving each month. Suppose it will cost you $4,000 to refinance and your new mortgage payment will be $200 lower. With this lower payment it will take you 20 months ($4,000/$200) to recoup the expense of refinancing. If waiting almost two years before realizing a savings from your new mortgage is acceptable to you, then refinancing makes sense in your situation.

Remember there are no hard-set rules when determining if mortgage refinancing makes sense in your situation. Evaluating the cost of obtaining the new mortgage will help you make your decision; however, you should weigh the benefits against the disadvantages of refinancing.

What are the Disadvantages of Mortgage Refinancing?

The main disadvantage of refinancing your mortgage aside from the cost of taking out a new loan is the fact that the clock is rewound to the beginning when it comes to repayment. Mortgage loans are front-loaded with interest and when you refinance you start the amortization schedule from beginning. Amortization describes the process of repaying your loan principle and interest over time. This means at the beginning of your loan the majority of your payment is applied to interest and very little goes to paying down the principle balance. Your tax deduction for mortgage interest will go up because of the higher interest payment; however, you will build equity at the slowest possible rate for you loan.

Mortgage Refinancing Has Tax Benefits

If you are considering refinancing your mortgage to payoff high interest debt like credit cards you will gain a tax-deduction for the interest paid on this debt after refinancing. Not only will you significantly less in finance charges for this debt but the interest paid is fully deductible every year on your Federal Income tax. Remember that while debt consolidation has many advantages it does not eliminate your debts but simply rearranges them making it easier to pay off.

A Lower Monthly Payment Can Free Up Cash For Other Things

Refinancing your mortgage with a lower monthly payment can free up cash in your budget for other things. If you’re a homeowner struggling to make ends meet a new mortgage could give your budget some much needed relief. There are risks associated with certain types of Adjustable Rate Mortgages and many homeowners are tempted with lower payment interest only and option loans. While it’s true that an option loan could get you a lower monthly payment, homeowners who abuse the “minimum payment” that comes with these loans could find themselves underwater when the lender recasts their loan.

Never take shortcuts when it comes to mortgage, foreclosures rates in the United States are rising significantly because homeowners are abusing these risky Adjustable Rate Mortgages. The decision to refinance your mortgage should not be taken lightly; your goal should be to approach lenders as a educated homeowner when refinancing. This will enable you to make a rational and informed decision whether or not a new mortgage makes sense in your individual situation. Doing your homework along with researching lenders and their mortgage products is free; however, neglecting this step when refinancing could cost you a bundle.

You can learn more about your mortgage refinancing options, including expensive pitfalls you need to avoid with my free mortgage video tutorial. For immediate free access to the tutorial and all videos click on the DVD image at the top of this page. The tutorial is completely free with no obligation to you now or in the future.

If you are in the process of refinancing your home mortgage you might have discovered that everyone and their cousin Jim has advice for you on finding the best deal. While most of the individuals offering advice have good intentions, there is a lot of bad advice and misinformation available, especially online that could cost you thousands of dollars. Here are several tips to help you avoid bad mortgage refinancing advice and find the perfect mortgage when refinancing.

Some of the worst mortgage refinancing advice is freely available on the internet. Everything from “Never refinance unless the new mortgage rate is 2% lower than your existing rate” to “Choose the mortgage with the lowest Annual Percentage Rate” to “Refinance with your Bank or Credit Union” is not only bad advice but could result in overpaying thousands of dollars for your new mortgage.

The Two Percent Refinancing Rule

The “Two Percent Mortgage Refinancing Rule” states that you should never refinance your mortgage unless your new interest rate is two percent lower. While there are plenty of good reasons for refinancing your loan with a higher interest rate; if you qualify for a lower mortgage rate it makes sense to evaluate the new loan on a costs/savings basis rather than just “two percent lower”

You can calculate cost/savings by dividing your total cost from refinancing the mortgage by the amount you save each month with the lower payment. Divide this figure by twelve and you’ll have the number of months it will take you to break even and realize any savings with your new loan. If you can live with this break even point it makes sense to refinance your mortgage.

Use the Annual Percentage Rate When Refinancing

The Annual Percentage Rate or APR was intended to allow borrowers to determine the overall cost of borrowing expressed as an yearly percentage of the loan amount. Lenders are required by law to disclose the APR; however, there is no standard for calculating this APR. Many lenders include and omit fees that give them the most favorable numbers; this makes the Annual Percentage rate completely worthless for choosing the best mortgage when refinancing.

How can you comparison shop for the best loan. Rather then make an apple to oranges comparison using the Annual Percentage Rate the best way to compare loan offers is to use the Good Faith Estimate and HUD-1 statement. Many people argue that the Good Faith Estimate is just an estimate and is as worthless as the APR; however, by reconciling your Good Faith Estimate against the HUD-1 statement you can ensure you’re getting the mortgage deal promised to you.

Refinancing With Your Bank is The Way to Go

This is probably the worst mortgage advice in the history of bad mortgage advice. The problem with banks and credit unions is that thanks to Banking Lobby they are exempt from the Real Estate Settlement Procedures Act. This legislation, also known as RESPA, protects homeowners in the United States by requiring mortgage lenders to disclose their profit margin and markup of your loan. Banks exploit this loophole in the RESPA laws by charging homeowners the markup known as Service Release Premium.

This markup exists only to boost the bank’s profit when selling your loan to investors on the secondary market. Because the bank is exempt from RESPA laws they are not required to disclose the markup and will never tell you the mortgage rate you could have had if you refinanced your mortgage somewhere else. You can learn more about refinancing your mortgage without overpaying by registering for my free mortgage toolkit. Register today by clicking the DVD image at the top of this page.

Are you considering mortgage refinancing with an Adjustable Rate Mortgage? If so, you will undoubtedly run across some very competitive mortgage rates. Are these low rates really a good deal? They could be a good deal, but maybe not. Here are several things to lookout for when mortgage refinancing with an Adjustable Rate Mortgage.

Teaser Rates Bait & Hook Gullible and Desperate Homeowners

Mortgage companies use teaser rates as a marketing trick to lure homeowners that don’t fully understand how Adjustable Rate Mortgage loans work. You know it’s a teaser rate when you see an advertisement for a 2.95% mortgage rate. Read the fine print and you’ll discover the mortgages comes with many strings attached.

Prepayment Penalties - These loans often include heavy penalties for early repayment. Pay off your mortgage early and you could pay as much as 3% penalty.

Negative Amortization - Adjustable Rate Mortgages are prone to experience “negative amortization” when the underlying index for your interest rate goes up during the teaser period. Any unpaid amounts from this increase are tacked on to your outstanding loan balance.

No Lifetime Caps – Over the life of your loan your mortgage interest rate could theoretically increase as much as 13%.

Mortgage lenders use teaser rates to prey on homeowners that lack understanding. If a mortgage company offers you mortgage rates or terms that sound too good to be true, be on the lookout for the strings attached. The problem with teaser rates on Adjustable Rate Mortgages is the homeowners frequently get hit with payment shock when their teaser rate runs out. The teaser rate is not the same as your contract interest rate which your payments are based on when the teaser expires.

It is possible to leverage a teaser rate to your advantage if you fully understand how the loan works. If you can negotiate for a mortgage with no prepayment penalty, you could use an Adjustable Rate Mortgage for a short term financial need and save yourself thousands of dollars in mortgage interest. You can learn more about your mortgage refinancing options with Adjustable Rate Mortgages by registering for our free six part tutorial.