Refinance Home Mortgage Guide

You can’t turn on the television these days without hearing about how low mortgage rates are. Following a series of interest rate cuts by the Federal Reserve, mortgage rates are at their lowest levels since 2004… but how do you know if a new mortgage is right for your situation? Taking out a new mortgage loan costs money and here are several tips to help you decide if refinancing is right for your situation.

Determine Your Break Even Point

You may have heard an old wives tale known as the “Two Percent Rule” of mortgage refinancing. This “rule” states that you should not refinance your mortgage unless the new mortgage rate is exactly two percent lower than what you’re already paying. This rule is complete rubbish! The decision whether or not it makes sense to refinance is actually quite simple in most cases and can be answered with a single question.

“How Long Before I Save Money?”

The answer to this question is also fairly simple to calculate. Take the amount of money you save with a lower mortgage payment and divide your closing costs and fees by this savings. This will tell you how many months it will take to realize a savings from the new home loan; if this length of time is acceptable to you than it probably makes sense to refinance in your situation.

Here’s an example to illustrate the decision to refinance your mortgage. Suppose for instance taking out a new home loan lowers your mortgage from $1100 to $900. This is monthly savings of $200 and your closing costs, fees, and points total $4,000. Divide $4,000 by the $200 you’re saving and it will take you 20 months to recoup the expense of refinancing your mortgage.

Beware Markup & Junk Fees

Once you’ve decided to go forward with a new mortgage it’s important to do your homework and learn how mortgage rates are quoted if you want the lowest possible interest rate. Homeowners who do this are able to refinance with wholesale mortgage rates without paying unnecessary fees. You can learn more about wholesale mortgage rates by registering for a free video tutorial; register today while these videos are still a free offer.

The average homeowner in the United States refinances every four to five years for a variety of different reasons. Many people refinance to lower their mortgage rate; however, consolidating bills or borrowing cash are also good reasons for refinancing. Is mortgage refinancing right for you? Here are several tips to help you decide if mortgage refinancing is right for you.

Are Mortgage Rates on the Rise?

Did you purchase your home with an Adjustable Rate Mortgage and are concerned how rising rates will affect your monthly payment? If this is you, refinancing your mortgage with a fixed rate loan allows you to lock in your mortgage rate and payment amount. You won’t have to worry about payment shock when that statement from the lender arrives after your Adjustable Rate Mortgage resets. If you already have a fixed rate mortgage and rates are rising there are still good reasons for refinancing even if getting a lower mortgage rate isn’t one reason.

Are Your Payments Too Much to Manage?

If your budget is struggling under the weight of your mortgage payment you could get a lower mortgage payment by refinancing even if you cannot get a lower rate. By extending the term length of your new loan you can get a lower payment by spreading your mortgage out over more time. This is a more expensive option as you will pay more to your lender for the financing; however, if you are in a cash crunch refinancing with a longer term length could be your answer.

Is Your Option ARM Headed For Trouble?

Many homeowners used risky option adjustable rate mortgages to purchase their homes because they couldn’t qualify for traditional financing. If you did this and have only been making the minimum payment you’re headed for big trouble. The problem with only making the minimum payment with an Option ARM is that it does not cover all of the interest due in a given month. The unpaid amount of interest is simply added to your mortgage balance each and every month. This means your loan is actually growing over time.

When your loan reaches a certain amount of negative equity, often 125% of your original balance your lender will “recast” your loan to a standard Adjustable Rate Mortgage amortized for the time remaining on your loan contract. Suppose you’ve been making this payment for five years on a thirty year mortgage; your new loan will have a term length of 25 years with a balance of 125% of you borrowed. Your payments will skyrocket. If you’ve barely been making ends meet with the minimum payment amount you’re destined to lose your home to foreclosure when this happens. If this describes your situation, don’t delay…refinance now before it’s too late.

Has Your Financial Situation Improved?

If your finances have improved since purchasing your home you may qualify for a lower mortgage rate. Did you get married and now have two incomes? Did you get a better paying job or pay off some of your debts? If your credit score is higher now than when you purchased your home you could qualify for a much better rate and lower your monthly payment at the same time.

Do You Have Private Mortgage Insurance?

If you used a 100% mortgage loan to purchase your home the lender might have required you to purchase Private Mortgage Insurance (PMI) at the time. The premiums for this insurance are included in your monthly payment and can add hundreds of dollars to your bill each month. You can save yourself some money by asking your lender to cancel your insurance; as long as you’ve been making your payments on time and have reached a certain amount of equity in the home the lender will cancel your PMI. If cancelling your PMI is not an option refinancing could save you a hundred dollars each month; even more.

Do You Want to Borrow Cash or Consolidate Bills?

If you have equity in your home this money is available to you for any reason you like. You can use this to pay off high interest credit cards, use the money to renovate or repair your home. Because you’re borrowing against the equity in your home you can use this money for any reason; there are no limits or restrictions on how your use of the cash.

You can learn more about refinancing your mortgage with a wholesale mortgage rate without paying lender garbage fees with a free mortgage DVD. Register today, the DVD is yours with no strings attached whatsoever.

Rather than looking at the big picture when refinancing their mortgages many homeowners obsess over interest rates without fully understanding how mortgage rates work. This creates a number of problems when refinancing including paying unnecessary fees and markup of your mortgage rate. Here are several tips to demystify mortgage rates and help you find the best deal when refinancing your home.

There is nothing mystical about mortgage refinancing. You’re simply replacing your existing loan with a new mortgage. This loan could come from a different lender or with your current lender. If you like your current lender and have made all your payments on time you might wonder if calling up your lender and asking for a lower rate would save you the trouble of refinancing.

Unfortunately the answer is no because in order to refinance your mortgage you have to qualify for the mortgage all over again. If anything with your financial situation has changed since you purchased your home it could make the process more difficult. This includes any life altering event such as marriage, divorce, self-employment, running up your credit cards, or economic factors beyond your control like declining home values.

When you apply for mortgage refinancing the loan underwriter will evaluate your current financial situation prior to approving your loan and determining your mortgage rate just as was done when you purchased your home. Because you are going through the mortgage process again you will have to pay many of the same lender fees and closing costs as you did before. These are the expenses commonly overlook by homeowners obsessing over getting the best “mortgage interest rate.” These costs include credit reports, appraisals, loan processing, and retail markup of your mortgage interest rate.

No Cost Mortgage Myth

There is no such thing as a “no cost mortgage” and anyone who tells you different is selling you an above market interest rate. No cost refinancing is simply a marketing trick designed to distract your from paying too much for your mortgage rate. Lenders charge above market rates to boost their profits when your loan is sold on the secondary market. While it’s true that you won’t have to fork over cash at closing, you’ll pay much more in finance charges for the entire duration of your mortgage.

Watch Out For Yield Spread Premium

The unnecessary markup of your mortgage interest rate by the person originating your loan is called Yield Spread Premium. This markup serves no other purpose than to give this person a commission for overcharging you. Most brokers do not disclose their markup of your mortgage rate on the Good Faith Estimate and they all have clever ways of disguising the fee on the HUD-1 statement. How does Yield Spread Premium work? For every .25% you agree to overpay with your mortgage interest rate the wholesale lender pays your broker a commission of 1% of your mortgage amount.

Yield Spread Premium is paid in addition to any origination fees you’re responsible to pay and because this fee comes from the lender many brokers tell you not to worry about it because it’s not coming out of your pocket. The problem with this reasoning is not the fact that the fee is being paid but why the lender pays it in the first place. Yield Spread Premium is paid to your mortgage broker because you’re agreeing to pay an above market interest rate…not exactly a win-win situation.

How do you avoid Yield Spread Premium when refinancing your mortgage? Start by telling your mortgage broker that you understand how this markup works and will not accept any loan with it. Ask your mortgage broker to see the mortgage rate sheets from the wholesale lender and don’t be fooled by rate sheets on the broker’s letterhead. You can learn more about your mortgage refinancing options, including costly pitfalls to avoid by registering for this free video tutorial.

Mortgage loan processing is a confusing aspect of refinancing for many homeowners. Many mortgage brokers charge a fee as high as $500 or more; however, isn’t this just a junk fee?

Many mortgages brokers justify their fee by saying they use a “professional loan processor” to process their files. First of all, what the heck is a “professional loan processor” and if this person gets paid $500 an hour for their work, where can I sign up? Nonetheless, here and the pros and cons of the broker’s “professional loan processor” argument to help you decide if “processing fees” are legitimate expenses when refinancing your mortgage.

Mortgage Loan Processing

What happens when a mortgage broker “processes” your loan application? Once your mortgage broker has sold you on a loan offer they’ll set up a file in whatever origination software that broker is using. After they’ve priced out the loan including the potential markup of your interest rate they’ll turn the file over electronically to the “loan processor.”

The “mortgage processor” checks the file for errors (electronically of course…computers do most of the work). If everything checks out the processor prints the application documents and disclosures. The necessary documents for closing your new mortgage include:

Once the application and mortgage documents have been sent to you for signature, the loan processor begins checking the title and proof of insurance and verifies your income using w-2s or bank statements. After your file is complete the processor assembles the necessary documents for the lender you’ve chosen and transfers the file to the loan underwriter. These documents are typically sent via FedEx or other courier. Your mortgage application has not yet been approved.

At this point the loan processor’s job is done and your file is in the hands of the underwriter. How much time is spent preparing your documents? One hour…maybe two? Is printing out documents prepared by a computer worth a $500 processing fee? Shouldn’t your mortgage broker print out their own paperwork?

If a mortgage broker’s time is that valuable they could easily find cheerful college students at temp agency to do this work for $15 an hour…how can you possible justify a $500 processing fee by someone that has nothing to do with underwriting the loan? I’m sure loan processors are real people with kids to feed; however, for the work necessary to get your file to the underwriter there is no justification for a $500 processing fee.

What do you think? Is the application processing fee a valid expense?

Leave your thoughts and comments below…

As for me, I think not…tell your mortgage broker to take out the trash and refuse to pay junk fees when refinancing your home. You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with my free video tutorial. Get started today, there is no obligation and doing your homework could save you thousands of dollars. You can sign up for immediate access by clicking the DVD image at the top of this page.