Home Mortgage Refinancing Guide

If you are considering refinancing your mortgage you might wonder what steps you should take to ensure that you get a good deal on your next home loan. Doing your homework before refinancing will not only save you thousands of dollars, but could prevent many future headaches in the process. Here are the steps you should take when refinancing to maximize your savings and avoid expensive mortgage pitfalls.

Step One: Review Your Credit Records

The first step you need to take before refinancing your mortgage is to review your credit records for errors. Because the mortgage rate you qualify for with the new loan is based largely on your credit score any mistakes found in your credit reports are going to cost you money. Congress recently passed a law requiring each of the three credit reporting agencies to provide you with a free copy of your credit report once per year. If you haven’t already been taking advantage of this credit report now is the time to get started.

You can access your credit records by visiting the website annualcreditreport.com. When you visit this site print out your credit records from all three agencies. (Equifax, Experian, and Trans Union) When printing your credit reports each agency will try and sell you a credit score or monitoring service; however, you do not need to pay for your credit score. When you apply for a new mortgage loan your broker will be able to tell you what your credit score is for free so don’t waste your money purchasing your credit score.

Once you have all three copies of your credit records you will need to carefully review these records for errors. If you find mistakes in your credit reports you will need to dispute the error with the corresponding credit agency and allow sufficient time for the correction to be reflected in your credit score before applying for a new mortgage loan. Each credit agency has a procedure for disputing mistakes in your credit files.

Step Two: Shopping for a Wholesale Mortgage Rate

Once you are confident that your credit reports are accurate you are ready to begin comparison shopping for mortgage offers. Most homeowners don’t understand that the mortgage offers you receive are for retail mortgage rates that include commission based markup. When your mortgage broker quotes you an interest rate they’ve already padded that rate to get a commission from the lender. Your lender qualifies you for a specific wholesale mortgage rate; however, for every .25% that your mortgage broker marks this rate up the lender pays a bonus of 1% of your loan amount. This commission is paid in addition to the origination fees you’re already paying for your broker’s services.

This markup of your mortgage rate for a commission is called Yield Spread Premium and is not only completely unnecessary, but is dishonest in most cases because the broker isn’t telling you what they’re doing. You can avoid this unnecessary markup of your mortgage rate by finding an Upfront Mortgage Broker that will only charge a flat fee for their services without marking up your mortgage rate.

The Upfront Mortgage Broker Association

Upfront Mortgage Brokers belong to a national association of mortgage brokers that adhere to certain ethical and professional standards. You can find out if there are any members licensed in your State by visiting the Upfront Mortgage Broker’s Association website at upfrontmortgagebrokers.org. If there is not a member in your State you can still find a broker willing to offer you wholesale rates; it will just take negotiating on your part. You can start by contacting mortgage brokers in your phone book and telling them that you understand Yield Spread Premium and will not accept any loan offer that includes this markup. Offer to pay them a reasonable origination fee for their services but do not agree to a loan that includes any form of lender paid compensation. A reasonable fee to pay for loan origination is one percent of your mortgage amount.

Step Three: Lock Your Mortgage Rate and Close on the Loan

Once your mortgage broker has agreed to refinance you with a wholesale mortgage rate you’ll need to lock in that interest rate. Make sure you get written confirmation of your rate lock from the lender and not something typed up on your mortgage broker’s letterhead. Your mortgage lender’s written rate lock confirmation will clearly show any Yield Spread Premium attached to your loan so pay close attention to this document. You should also make sure that you get the HUD-1 statement and carefully reconcile this document against your Good Faith Estimate to make sure you are getting everything you agreed to and were promised with your new mortgage. The HUD-1 statement is the final word when it comes to your new mortgage so any discrepancies on this document need to be addressed before you sign the mortgage contract. Once you are satisfied that the HUD-1 statement is accurate all you need to do close and wait for your loan to be funded.

You can learn more about refinancing your mortgage with a wholesale mortgage rate and expensive pitfalls to avoid in the process by registering for a free mortgage DVD. Sign up today, the videos are yours free with no obligation.

Refinancing your home mortgage loan can be an overwhelming experience for many people. New homeowners are bombarded with acronyms and jargon like APR, ARM, GFE…at times it can be too much to handle. Today I’m going to talk about the Annual Percentage Rate (APR) and the best way to comparison shop mortgage offers when refinancing.

There are many misconceptions and bad advice surrounding Annual Percentage Rate. Many people, including some financial advisors, will tell you that using the APR is the best way to compare mortgage offers when refinancing. While it’s true that Federal Truth in Lending Laws in the United States require mortgage lenders to publish a figure called “Annual Percentage Rate,” there are no standards that lenders are held to when calculating this figure.

So What is Annual Percentage Rate?

APR is a rate of interest expressed as an annual percentage that is supposed to tell you at a glance the costs of borrowing with a particular loan. The intent was to keep lenders honest when advertising their ultra-low teaser rates. Unfortunately, the Truth in Lending Law failed to protect homeowners from abusive lending practices.

The biggest problem with Annual Percentage Rate is that every lender calculates the figure differently and there are no standards lenders are required to follow when disclosing their fees. While it’s true this isn’t the lender’s fault, they certainly use this flaw in disclosure laws to their advantage. Because every lender calculates their APRs differently, relying on this figure to compare loan offers is like comparing apples to oranges and will not tell you which loan is the better deal.

How Do You Shop for a Mortgage if the APR is Useless?

There are several ways to compare loan offers before committing to a mortgage lender. One thing you need to understand about shopping for a mortgage is that you’re relying on honesty of a stranger. Shopping for a mortgage loan is a lot like shopping for a used car. Your salesperson wants you to pay as much as possible for the car because their commission depends on it. The same is true for mortgage brokers, and as you might know from stories in the news or personal experience, mortgage brokers do not have a reputation for being honest people.

There are two documents that you will encounter when refinancing your mortgage that will help you choose a lender. The first is the Good Faith Estimate (GFE). While Good Faith Estimates are flawed like the Annual Percentage Rate and are only as good as your broker is honest, they give you an itemized list of charges you can use to make a comparison. Mortgage lenders are required by law to provide you with a Good Faith Estimate upon receipt of your application; however, most will give it to you in advance if you ask politely.

The Good Faith Estimate leaves much to be desired and many originators omit or misrepresent charges to make their loan offers more attractive. You can keep this person honest using the HUD-1 statement before you sign your loan contract. You should receive the HUD statement at least 24 hours prior to closing. Your mortgage lender is required to disclose everything on this document and if the charges do not come close to what you received on the Good Faith Estimate you’ll need to have a heart-to-heart discussion with the person originating your loan before taking your business elsewhere.

You can learn more about comparison shopping for the perfect mortgage when with my free mortgage refinancing video tutorial. The videos and tools are yours free with no obligation now or in the future.

Many homeowners that decide to refinance their home mortgage find the process confusing and intimidating. No one wants to be taken advantage of when it comes to their finances and the choices can be overwhelming. Here are several tips to help you get off on the right foot when refinancing your mortgage.

Before you start shopping for a new mortgage lender it is important to review your credit records for any mistakes or negative information that could be dragging down your credit score. The mortgage rate you receive when refinancing is largely determined by your credit score, and your credit score is derived from the contents of your credit history.

There are actually three credit histories you need to be concerned with and the records are maintained by three separate companies. The credit reporting agencies responsible for maintaining your records are Trans Union, Experian, and Equifax. These companies have gotten better at sharing information; however, it is still possible to have an error on one credit agency report that isn’t present on the other two. This is why you should request copies of all three credit records and carefully review them for errors.

Recent legislation passed by Congress requires the three credit agencies to provide you a free copy of your credit history every year. You can access these records by registering with the website annualcreditreport.com. This site will try and sell you a credit score when you sign up; however, you do not need to know your credit score when refinancing. If you really want to know what your score is your lender can tell you what it is. Once you’ve reviewed your credit records and are confident they are error free you’ll need to determine which type of loan is best for your needs.

How to Determine Which Type of Mortgage is Right for You

There are two basis types of mortgage loans. You have a choice of refinancing with a fixed interest rate loan or an adjustable rate mortgage. Both choices have advantages and disadvantages depending on your individual circumstances. Mortgages with fixed rate loans have the advantage of predictable payment amounts for the entire duration of your loan regardless of the economy. Adjustable rate mortgages typically come with lower interest rates than their fixed rate counterparts; however, there is always the risk of payment shock when rates go up.

Many homeowners avoid adjustable rate mortgages completely because they’ve heard the loans are dangerous. While it is true adjustable rate mortgages are frequently abused by homeowners who don’t understand the risks, when used correctly they have the potential to save a savvy borrower thousands of dollars. Adjustable rate mortgages work especially well for homeowners that plan on keeping the loan for a short period of time, usually less than five years.

Homeowners in need of short-term financing are able to take advantage of fixed introductory periods offered by many adjustable rate mortgages. Some hybrid adjustable rate mortgages offer fixed rate periods that last as long as five or seven years. If you sell or refinance when before the fixed rate period expires you have eliminated much of the risk associated with adjustable rate mortgage loans. The risk with an adjustable rate mortgage comes from the potential for the borrower to experience payment shock when the lender adjusts your interest rate or recasts the loan. Recasting occurs for homeowners that abuse negative amortization loans with a balance exceeding 110-115% of the original loan amount. Negative amortization refers to a mortgage loan that grows over time rather than one that is gradually paid off.

Now that you’ve checked your credit records for errors and have decided which type of mortgage your need you are ready to begin shopping for a lender. Choosing the right type of lender can make the difference between refinancing with a great loan or an expensive mistake. You can learn more about finding the right lender when refinancing your mortgage and other expensive pitfalls you need to avoid with my free mortgage tutorial. You can register for the free tutorial by clicking the links at the top of this page.