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Should older borrowers refinance?

December 21st, 2011

How old is too old to refinance? A recent Reuters article weighed in on the wisdom of Federal Reserve Chairman Ben Bernanke refinancing his mortgage loan at the age of 57, just two years after his last refinance. With interest rates near historic lows, some baby boomers may be thinking about refinancing their mortgage loans to improve their financial situation. Here are some things to consider before applying for a refinance when you are near — or even past — retirement age.

  1. How many years do you have left on your current mortgage? Each time you refinance you are setting back the clock on your mortgage loan amortization schedule. Starting over with a new loan means that most of your monthly payments will go toward interest payments during the early years of the loan. So decide whether it is worth it to refinance your current loan and stretch out the payment for a longer period of time.
  2. Can you refinance into a shorter term? Refinancing into a 15-year term could make sense if you have already paid down a lot of principal on your current home loan. Depending upon how much principal you owe, your monthly payments could actually increase with a 15-year mortgage.
  3. Are you still working? Being employed with a healthy income can improve your chance of getting approved for refinancing. Mortgage lenders are scrutinizing financial information of potential borrowers to determine if they are a good risk. Your credit score and other information such as savings and assets will factor into whether you get approved for a loan. If you have already retired, it will likely to tough to get approved for refinancing, but you may qualify for reverse mortgage. Reverse loans allow people aged 62 and up to convert some of their home equity to cash.

Refinancing a mortgage loan can work for some older people. But take time to compare several mortgage quotes to get all the information you need about doing a refinance so you don’t end up struggling to make monthly payments well into your golden years.

Cash-in refinances break record in 4th quarter

February 3rd, 2011

More homeowners than ever paid down mortgage loan balances while refinancing their homes in the fourth-quarter of 2010, according to Freddie Mac. During the period, 46 percent of homeowners who refinanced mortgages brought cash to closing to lower their principal balance. That is the highest “cash-in” share since Freddie Mac began tracking refinance activity in 1985.

Paying down mortgages and other debt

Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement:

Consumers are generally shedding debt, and mortgages are just another way they’re doing it. Between 2007 and the third quarter of 2010, mortgage debt declined more than $400 billion, according to the Fed. The estimated volume of net equity cashed out in our report do not account for the homeowners who have paid off their mortgages in their entirety.

Cash-out refinancing

Freddie Mac also reported that the percent of cash-out refinances, in which homeowners cashed out some home equity, fell to a record low. Borrowers who increased their mortgage loan balance by at least 5 percent accounted for 16 percent of mortgage refinancing. The cash-out refinance share has averaged 62 percent over the past 25 years.

Getting a cash-out refinance deal has gotten tougher for many borrowers as the housing crisis has dragged on. Lower home values, high unemployment and tougher lending standards all have put the brakes on the my-house-is-a-piggy-bank mentality that swept America before the housing downturn.

Taking advantage of low mortgage rates

Some savvy homeowners who still have good credit have can use current market conditions to their advantage. Instead of using low mortgage rates to simply lower monthly payments, you can choose to also reduce the amount of principal being refinanced by bringing cash to closing. This strategy can give you a choice of making the new lower payments or continuing to pay down your mortgage faster by sticking with the higher payments you made before refinancing. Either way you end up paying out less interest over the life of the mortgage loan.

When shopping around to compare mortgage loans, let lenders know that you are interest in bring cash to closing to pay down the principal. This could work in your favor and allow you to get a better mortgage rate. Bring cash to closing also could push up your home equity enough to get rid of monthly mortgage insurance (MI) payments.

Home refinance checklist

October 8th, 2010

Current mortgage rates are super low, and many homeowners are rushing to refinance before they begin to rise again. If you’re thinking of refinancing, remember the following things.

  • Shop around to compare mortgage rates from several lenders. Not all mortgage lenders offer the same type of deals. Among the differences in refinance programs you may find are deals that offer low closing costs and bonuses or other incentives for closing on time. Some mortgage lenders may even be willing to waive certain fees or closing costs.
  • Your credit score does matter. The key to being offered the best mortgage rates lies in your credit score. Mortgage lenders want to see a strong credit report that includes a history of paying bills on time, a low debt-to-income ratio, and no judgments or liens. If you have a spotty credit history, take time to repair your credit before going to a lender to apply for a refinance.
  • A refinance could actually increase your monthly payments. That would be the case if you were to choose a 15-year mortgage loan. A 15-year home loan is going to have a lower interest rate than a 30-year loan, but you’re likely to have significantly higher monthly payments with the shorter term.
  • Refinancing into a 15-year mortgage can help pay off your home faster. If you can afford the monthly payments without it being a financial hardship, this could be the way to own your home free and clear of debt sooner.
  • Refinancing can get you out of an adjustable-rate mortgage (ARM). Many homeowners with ARMs fear the day mortgage rates begin to rise because that means they would end up with a higher monthly payment when their loan resets.
  • Be ready to provide documentation for everything. Mortgage lenders want to know how much you earn each month and will ask you for recent pay stubs and your most recent tax return. If you are self-employed, expect to provide an income statement or other information about your business. You also may be asked for proof of assets in savings or investment accounts.
  • Make sure you have enough home equity to avoid mortgage insurance (MI) payments. MI is required when you have less than 20% equity in a property.

Depending upon your situation a refinance could allow you to keep a lot more money in your pocket each month. Refinancing also can shave thousands of dollars off the amount of interest paid over the life of a mortgage loan.

Getting a Mortgage Means Shopping for Homeowners Insurance

March 26th, 2010

If you’re in the process of getting a home loan, you may have begun shopping around for homeowners insurance. When comparing policies keep the following tips in mind to help keep your cost down.

Mortgage Related Expenses

Don’t wait until the last minute to get a homeowners policy. Your monthly mortgage costs are going to include not only principle and interest payments, but also insurance and property taxes.

Use a Mortgage Payment Calculator

Mortgage lenders set aside insurance and tax payments in an escrow account until it’s time to pay your insurer and local government. Use a mortgage payment calculator that lets you include the costs of insurance and taxes so you can figure out exactly how much you are going to pay each month.

Pay a Higher Deductible

The higher your deductible the lower your monthly premium. Deductibles usually start at $250, but by increasing the amount to $500 you could save up to 12% on your premiums, according to MSN. Raise it to $1,000 and you could save up to 24%.

Look for Other Discounts

Another way to reduce the amount you pay for insurance is to buy homeowners and auto policies from the same company. Ask your insurer about discounts for being a long-time customer, having an alarm system, or installing smoke detectors.

Replacement Cost

Get insured for the replacement cost on your home. That’s the amount it would actually cost to rebuild the home in your area. Actual cash value coverage only covers the cost to replace your home minus depreciation. 

Mortgage Refincing and Insurance

If you are doing a mortgage refinance, don’t automatically assume that it makes sense to keep your current homeowners insurance policy. Review the policy and get quotes from other insurers. Ask your insurance company if you qualify for discounts and let them know that you plan to take your business elsewhere if it can’t give you a more competitive price.

Switching Policies

Do not cancel your existing insurance policy until you actually have a new one in place. Be prepared to come to the closing with proof that you’ve prepaid up to a year’s worth of premiums for your insurance policy.  

Even if you aren’t getting a new home loan or doing a mortgage refinance it can pay to review an existing homeowners policy. You don’t have to wait until it’s time for the policy to be renewed to look for ways to lower the cost.

Should You Refinance to Get a 15-Year Mortgage?

December 31st, 2009

Mortgage refinance rates have edged up recently but are still low enough for many people to apply for a loan. If you’ve been paying on a home loan for several years, refinancing to get a 15-year mortgage can help you pay off your home quicker. But should you do it?

Lower Mortgage Rates

Mortgage loans with a 15-year term have lower mortgage rates than 30-year loans. That means you end up paying less interest over the life of a loan. For instance, 30-year fixed  mortgage rates are averaging 5.14%, while 15-year fixed loans are averaging 4.54%, according to Freddie Mac.

High Monthly Payments

But refinancing into a 15-year loan from a 30-year mortgage usually means your monthly payment is going to rise. For example, a 30-year mortgage  for $200,000 with a 5.14% rate would have monthly payments of $1,090.82, while the same amount for 15 years at 4.54% would have monthly payments of $1,534.08. Use a mortgage payment calculator to run different scenarios for interest rates and terms.

More Homeowners Refinance for 15 Years

Despite the higher payments, 15-year mortgages are popular these days. About one in five mortgage refinancings in November were for 15-year mortgage loans, according to the Mortgage Bankers Association. “My general advice is homeowners who have 30-year mortgages — and they’ve been in them for 3 or 4 years — it’s prudent not to go back into a 30-year mortgage,” Amir Syed of American Street Mortgage told CBS2.

Mortgage Principal and Interest Payments

Most of your mortgage payments go toward interest in the early years of amortization. So if you already have a 30-year home loan and refinance for another 30 years, you end up starting over again with most of your payments going toward interest.

It’s important to discuss all the numbers with your mortgage lender to determine if it really makes sense to refinance. Use the refinance savings calculator to determine if you can save money by refinancing and how long it is going to take to recoup the cost of refinancing.

Financial Freedom

For many people paying off their home represents true financial freedom. A 15-year mortgage is one way to reach this goal quicker, although you may have to make some sacrifices in your monthly budget to afford higher mortgage payments.

You can get free, no obligation mortgage refinance quotes here to determine if a 15-year loan can help you.

Getting Help with Mortgage Loans

November 20th, 2009

Many homeowners who have trouble making mortgage payments turn to savings and investment accounts for funds. But some financial experts recommend that homeowners seek help from mortgage loan modification or refinance programs before depleting their savings or ending up in foreclosure, according to a Consumer Reports article. 

Keeping money in a savings account can allow you to have access to cash in the event of an emergency. Here are some things to remember about getting help with your home loan.

Mortgage Loan Modifications

The government’s Making Home Affordable program has helped about 650,000 homeowners modify mortgages since February. That’s about 20% of the people who are eligible for help through the program.

If you are struggling to stay current with mortgage payments or are already behind on payments, you could qualify for a home loan modification. You also must:

  • Have a first lien that originated on or before Jan. 1, 2009
  • Have monthly mortgage payments (including taxes and insurance) greater than 31% of of your monthly gross income
  • Be able to document that you are having trouble making mortgage payments because of a financial hardship

Even if you don’t have a mortgage loan guaranteed by Fannie Mae or Freddie Mac, you could qualify for assistance. Contact your mortgage loan service to find out if you qualify for help. Mortgage modifications last for a three-month trial period, but are supposed to be extended for five years if you make the payments on time.

Refinance to Lower Mortgage Rate

Mortgage rates are very competitive right now if you want to refinance. Even if you’re home has lost some value during the housing crunch, a mortgage refinance isn’t impossible.  You may qualify for a refinance if:

  • Your home loan is owned or guaranteed by Fannie Mae or Freddie Mac
  • You are current on your mortgage payments
  • The amount you owe on your first lien doesn’t exceed 125% of the current market value of your property
  • You have income to make payments after mortgage refinancing

Lowering Monthly Payments

Even if there is a second lien on your home, you could qualify for a refinance. If you currently have a high mortgage rate, refinancing should lower your monthly payments. However, if you currently have an interest-only loan and refinance into a fixed-rate mortgage, your monthly payments may not decrease. But refinancing should result in an overall savings over the life of the mortgage loan.

When seeking help with a mortgage loan it’s always best to contact your loan servicer directly. Avoid using companies that offer to modify your mortgage for a fee that is paid upfront.

How Appraisals Affect Mortgage Loans

October 30th, 2009

So you’re ready to get a home loan or refinance and want to know how large of a mortgage you can get. That depends on several factors, including the home appraisal. The following guide shows how an appraisal affects the amount of your mortgage loan.

What Is an Appraisal?

An appraisal gives an estimate of what a home is worth. When you apply for a home loan the mortgage lender usually orders up an appraisal and chooses the company to do it. The cost of the appraisal is included in your closing costs, and you are entitled to a copy of the appraisal.

If you already have a mortgage and are thinking of refinancing, you can get your own appraisal to get an idea of what your home is worth. But your mortgage lender is under no obligation to use that report.

Declining Home Values

The appraiser does a comparitive market analysis of recent home sales in your area. He or she also looks at the condition of your property and how much it would cost to rebuild it.

Because so many people have seen their home values plummet during this recession, it can be tough for them to get a large enough appraisal to qualify for a mortgage refinance or new home loan. In many cases homeowners are “upside down” on their loans, or owe more on a mortgage than their house is currently worth. If that happens, you may be denied a mortgage loan.

If the house appraises for less than you expected, you may be asked to make a larger down payment. If you’re buying a home the mortgage lender may even ask you to go back to the seller to renegotiate the sale price. 

Reasons Appraisal May Be Low

There are various reasons an appraisal may come in lower than your expected, including:

  •  Your neighborhood may have a lot of foreclosures, which could affect your home value
  • The underwriter could have evaluated the home incorrectly
  • The seller may have overpriced the house
  • The appraiser may not have much experience

You can always appeal an appraisal, but there is no guarantee of it getting changed. If your mortgage lender won’t budge, you may be unable to refinance or obtain the mortgage loan you need to buy a home.

10 Things to Consider about Doing a Mortgage Refinance

October 5th, 2009

Current mortgage rates have fallen near record lows, but should you move to do a mortgage refinance? Here are 10 things to consider if you’re thinking about refinancing.

  1. Consider a 15-year mortgage if you have a low balance. Fifteen-year mortgage rates averaged 4.36% last week, the lowest rate since Freddie Mac began tracking the rates.
  2. Consider paying points to get a lower mortgage rate. Generally, you can lower your mortgage rate by about 0.25% for each point you pay.  Each point will equal 1% of the total amount of your mortgage.
  3. Use a loan calculator to figure out what your monthly payments will be after refinancing. A loan calculator also can show the break-even point for recouping fees paid to refinance.
  4. Check out home values in your area before applying to refinance a mortgage. This will keep you from being surprised by a low appraisal during the refinance process. Keep in mind that if you live in an area hit by a lot of foreclosures, it may be difficult to get a high enough appraisal to refinance if you don’t have a lot of home equity.
  5. Don’t apply for a mortgage refinance until after you’ve reviewed your credit report. Make sure all information on your report is accurate. If you have a poor credit history, you may be turned down for refinancing.
  6. Don’t apply for other types of credit before getting approved for a mortgage refinance. Too many credit inquiries or newly opened lines of credit are red flags to mortgage lenders.
  7. Ask mortgage lenders to provide a Truth-in Lending Disclosure and Good Faith Estimate before paying an application fee or a rate lock-in fee. Some lenders may balk at doing this, but anyone who wants your business should be able to give you this information.
  8. Make sure you continue making payments on your current mortgage. You are still responsible for the payments until you close on the refinance.
  9. Comply with the mortgage lender’s request for documentation of income, income taxes, financial statements, etc. Dragging your feet on getting these documents together can delay closing on your home loan.
  10. Just because mortgage rates are low doesn’t mean you should refinance. Talk with an experienced mortgage counselor if you need help deciding whether or not refinancing will help you.

Countdown to Your Mortgage Closing

If you do refinance your mortgage, be patient. Mortgage lenders have been overwhelmed by requests for loan modifications and refinancings so it make take a little longer than you want to get to closing.

Should You Pay Points on a Mortgage Loan?

September 23rd, 2009

Current mortgage rates have declined to an average of about 5% for a 30-year mortgage, pushing some homeowners to refinance or apply for a new home loan. If you have a good credit score you’ll likely qualify for the best mortgage rates. But even if you don’t have that great of a score you can pay points on a loan to lower your mortgage costs.

What Are Points?

Each point equals 1% of the amount of your mortgage. So for a $250,000 mortgage  a point would be equal to $2,500. Depending upon the loan, you could choose to pay several points. How many points you pay usually depends upon things like how much of a down payment you have. Read the rest of this entry »

8 Mistakes to Avoid When Refinancing a Mortgage Loan

August 7th, 2009

A mortgage refinance can lower your monthly payments and decrease the amount of interest paid over the life of your home loan. But don’t just focus on mortgage rates without understanding everything involved with a refinance. Here are eight mistakes to avoid when refinancing a mortgage.

  1. Not shopping around for mortgages is a huge mistake. It’s imperative that you compare different deals to make sure you get the loan package that is right for your situation. Not all mortgage refinancing is the same so slow down and take your time. Read the rest of this entry »