Nearly 40% of homeowners in the United States are paying six percent or more on their home loans because they feel mortgage refinancing is out of reach. If you’re one of these homeowners or have been procrastinating because you don’t want to make a costly mistake, there are steps you can take to make sure you’re not overpaying. Here are my top 5 mortgage refinancing tips to make sure you’re getting the lowest refinance mortgage rates from today’s best mortgage lenders.
RefiAdvisor’s Top 5 Mortgage Refinancing Tips
- Are you planning on refinancing, considering selling and you’ve got an adjustable rate mortgage (ARM)?
- Are you paying more than five percent and have credit problems or an unfavorable loan-to-value ratio?
- If you don’t think you’ll break even recouping your closing costs consider a Hybrid Adjustable Rate Mortgage.
- If you have an unfavorable loan-to-value ratio or are underwater consider cash-in mortgage refinancing.
- Can’t qualify? Consider applying for a mortgage loan modification.
Fixed mortgage rates have stalled near four percent and refinance mortgage rates on ARMs don’t seem to be going up anytime soon so you’re probably better off in your existing home loan (for the short-term). If you’re paying less than four percent on your existing ARM or Hybrid ARM enjoy making those low payments. The other side of the coin is if you plan on staying in your home long term, you might consider locking in a low fixed rate if you aren’t facing a steep prepayment penalty.
You might want to consider an FHA mortgage refinance as the credit requirements are more flexible and it’s easier to qualify with little equity. President Obama’s improved HARP 2.0 and Broad Based Refinance Plan should allow millions of underwater homeowners to qualify for mortgage refinancing in the coming months. Keep in mind that the FHA will require you to pay for mortgage insurance; however, if the refinance mortgage rates are lower than your existing home loan then it should be possible to recoup your out-of-pocket expenses.
If you’ve calculated your break-even point on a traditional fixed-rate home loan and think the time frame is too long to recoup your loan origination fee and other closing costs, consider a Hybrid ARM. These Adjustable Rate Mortgages combine a low fixed-rate for a period of time, (often 3, 5 or 7 years) and then adjust regularly at the end of the fixed period. If you’re paying over five percent on your existing home loan mortgage refinancing with a hybrid ARM under three percent can be a very attractive offer. Just make sure you’re not facing a hefty prepayment penalty if you refinance at the end of the fixed rate period.
Bonus Tip: You’ll see Hybrid ARMS annotated as 5/1 or 7/1 ARMs. This means the fixed rate period is 5 or 7 years and the loan resets every (1) year after that.
According to Freddie Mac nearly 50% of mortgage refinance transactions at the end of last year were cash-in. This means you’re bringing enough cash to the table to buy yourself a favorable loan-to-value ratio in order to qualify. This is an excellent strategy for homeowners planning on staying in their homes long-term.
Your lender might approve a loan modification allowing you to take advantage of today’s refinance mortgage rates by adjusting the terms of your existing home loan. The process can be difficult and time-consuming as you are completely at the mercy of your existing lender. Keep in mind that a loan modification could also damage your credit. If you’re seeking mortgage counseling to see if a loan modification is a possibility, visit the Hope Loanport site at http://www.hopeloanportal.org.
You can learn more about improving your finances without leaving money on the table when refinancing by checking out my free Underground Mortgage Videos.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
