Getting a lower mortgage rate is one of the main reasons people choose to refinance their home loans. If you are a homeowner with good credit you will not have any difficulty refinancing your home mortgage loan.
On the other hand, if you have less than perfect credit you will have to put more effort into getting your loan application approved. While having bad credit won’t prevent you from mortgage refinancing, it can make the experience stressful and wind up costing you more money than you’re willing to pay.
Here are several tips to help you refinance your mortgage without paying too much or losing sleep during the process.
Mortgage Loans for People with Bad Credit
Why do mortgage lenders offer loans to people with bad credit? Lenders view credit as the indication of that person’s likelihood of defaulting on the home loan. Still, there is no guarantee that homeowners with good credit will not default on their loans. People with good credit lose their jobs and have unforeseen financial problems just like those with poor credit. Just because a person has poor credit does not mean they are not determined to change their circumstances and get back on track financially. Mortgage lenders tailor loan packages to homeowners with less than desirable credit histories.
If you are a homeowner regardless of your credit history, doing your homework is necessary to get the best possible mortgage rates.
In the simplest definition, mortgage refinancing is taking out a new home loan to replace your existing mortgage. The entire process of refinancing is very similar to what you went through when you first took out your mortgage loan. You will be required to pay many of the same fees when refinancing including attorney fees, title fees, and possibly prepayment penalties. Because of these out-of pocket-expenses it is important that you compare loan offers and understand the terms associated with each mortgage. This will enable you to pick the best loan for your financial situation.
Mortgage refinancing allows you take advantage of lower interest rates; however, there are other reasons beyond lowering your payment amount to get a new mortgage loan. Borrowing against the equity in your home is another popular reason for refinancing. If you are taking cash back at closing your mortgage rate will be higher than if you were not borrowing against the equity in your home; this is why careful comparison shopping can save you hundreds of dollars per month on the new loan.
Learn How the Mortgage Industry Works
The majority of mortgage companies and brokers you encounter do not fund their own mortgage loans. This means they are simply reselling loans for other lenders. These “other lenders” are known as wholesale lenders and offer incentives to the companies reselling their loans to drive up mortgage rates. Simply put the person arranging your loan is trying to sell you a loan with the highest possible mortgage rate. The incentive lenders offer for marking up your mortgage rate when refinancing is known as Yield Spread Premium and if you agree to a home loan that includes this markup you’ll pay thousands of dollars every year unnecessarily.
Avoid Yield Spread Premium and Save Thousands
Doing your homework and recognizing Yield Spread Premium in your rate lock confirmation, Good Faith Estimate (GFE), and HUD-1 statement allows you to refinance with a wholesale mortgage rate. You can learn more about finding a wholesale mortgage rate for your home loan by registering for the free mortgage videos available on this website. These videos walk you through the entire process of understanding mortgage terminology, comparing loan offers, choosing the right broker, and avoiding junk fees. Register today, the videos are free and there is no obligation to you.