3 Ways to Fix Your Broken Mortgage

If you’re paying on a home mortgage loan chances are it’s broken. In fact, according to the Secretary of Housing and Urban Development nearly every American today is overpaying one way or another. Unnecessary discount points or paying too much for the loan origination fee are some of the most common mortgage mistakes. Here are three tips for fixing that busted, money sucking home loan you’ve been dragging around for years.

1. Get Lower Mortgage Rates

Youre probably thinking “Duh.” I mean really…the mortgage refinance craze has been going on for years but there are still millions of homeowners paying six percent or more on their home loans. It’s not their fault; mortgage refinancing has been out of reach of most underwater homeowners until recently thanks to President Obama’s Home Affordable Refinance Program. If you’re underwater, meaning you owe more than your home is worth, contact a HUD housing counselor TODAY at 888-995-HOPE (4673).

This government refinance program has seen a lot of changes. First we had HARP, which didn’t really help anyone because it had a restrictive 125% loan-to-value limit. Then we had HARP 2.0 which removed the loan-to-value limit completely. HARP 3.0 is rumored to remove the requirement that Fannie Mae or Freddie Mac back your mortgage loan; however, proposed legislation under the Responsible Homeowner Act of 2012 hasn’t done it yet.

If Fannie Mae or Freddie Mac have had your mortgage and they got it before May of 2009 the basic requirement to qualify for HARP is that you have no late payments for the last six months and only one late payment for the six months before that. If you qualify for this government refinance program you’ll still have to find a lender to approve your application. Lender participation in the Home Affordable Refinance Program is voluntary and many lenders enforce their own requirements for approval. This is why I recommend starting with community based credit unions when shopping for a HARP lender.

If you don’t have cash to pay your closing costs for mortgage refinancing you can still get your loan origination fee and other closing costs paid for you by taking a slightly higher mortgage rate. Your broker or loan officer can explain how it works but not having cash for closing should not prevent you from taking advantage of today’s low refinance rates.

2. Get a Shorter Mortgage Term Length

Term length is the amount of time you have to repay your mortgage loan. Most people take out a 30-year mortgage without giving it a second thought; however, 15-year mortgages are becoming increasingly popular. 15-year refinance rates recently slipped below three percent so if you can afford a slightly higher monthly payment the potential savings is well worthwhile.

According to Dan Green of TheMortgageReports.com, at today’s refinance mortgage rates, you’ll save yourself $46,000 for every $100,000 you borrow in long-term interest by choosing a 15-year term length. That’s a $115,000 in savings on a $250,000 home loan! Also, if you’re considering a government refinance program like HARP there are incentives for choosing shorter term lengths to help get you right-side up in your mortgage.

3. Do Nothing At All

You’re probably thinking that’s not very helpful advice… but hear me out. If you overpaid the loan origination fee or fell for unnecessary lender discount points the last time you refinanced your mortgage you probably haven’t broken even recouping these out-of-pocket expenses. If you refinance again you’re going to be paying closing costs all over again and the chances of recouping your losses gets slimmer.

You can calculate approximately how much money you’re losing by refinancing again by looking at how much you paid closing on your last home loan and diving by the amount your payment went down. This tells you the number of months you’ll have to wait before your break even recouping the fees you paid refinancing the last time. This calculation only works if you kept the same term-length or went shorter when refinancing. If you took a longer term-length to get a lower payment you’re never going to break even because of what you’re paying for the extra financing.

If you decide to go ahead with mortgage refinancing you’ll get more benefit from today’s low refinance rates by avoiding discount points and minimizing your loan origination fee. I’ve seen community based credit unions charge as little as $700 for the mortgage origination fee where many of the so-called best mortgage lenders charge one percent or more. Remember, the less you pay in lender fees closing on mortgage refinancing the sooner you’ll break even and benefit for that lower interest rate.