Home Mortgage Refinance Explained
Refinancing is often considered one of the most beneficial ways to save money on your home mortgage. Refinancing is when you renegotiate the terms of a loan, essentially the refunding or restructuring of debt with new debt, equity, or a combination of both. Refinancing is basically taking a new mortgage to replace an old one. Refinancing is often the best way to save money, get a lower interest rate and a lower monthly payment, or keep the monthly payment the same and have a shorter loan term. Refinancing is used in most cases to improve overall cash flow.
There are many things that play a role in whether or not refinancing is a good move. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance. Sometimes, refinancing is an appropriate way to resolve financial problems. Refinancing is not advisable if you plan to move in next few years, because the price that you pay for the refinance will just reduce or negate the savings that you get from the interest rate or lower monthly payment. Another obstacle to refinancing is the current slump in the housing market where values of many homes have decreased to below their purchase price. If cash flow is an issue and refinancing isn’t available, try to work out a plan with your lender to modify your current loan that would allow you to make either a smaller payment, or to miss a payment until you have the funds.
In the context of personal finance, refinancing a mortgage can be used to pay off high-interest debt such as credit card debt. Debts can be paid and revolving accounts satisfied so that the homeowners credit is not ruined. If the borrowers have wisely used their time and opportunities to establish a positive credit history, this should be a benefit to them. You may be able to secure a lower interest rate because of changes in the market conditions or because your credit score has improved. If your credit points have been decreasing in recent years, lenders may not endorse the refinance.
Refinancing may be undertaken to reduce interest rates, to extend the repayment time, to pay off other debt, to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), or to raise cash for investment. As part of the mortgage refinancing process, various information that was required for your first mortgage will again be needed (such as your financial records and credit reports for you new loan report.) You should know how much you will pay in all (interest and principle together) as well the term over which you will be making payments. Interest rates and number of credit points determine the total cost for a second mortgage refinancing. Most refinancing lenders offer a variety of combinations of points and interest rates. Paying more points typically allows one to get a lower interest rate than one would be capable of getting if one paid fewer or no points. A general role of thumb is that refinancing becomes worthwhile if the current interest rate on your mortgage is at least 2 percentage points higher than the prevailing market rate. The average cost of refinancing is usually in the range of three- to six percent of the value of the loan, plus any prepayment penalties and charges associated with paying off any second mortgages that may exist.
Though banks have been directed to tighten their credit purse strings by stiffening their loan qualification criteria somewhat, as long as homeowners have done their part by paying their mortgages on time, it’s likely that they’ll have very little trouble finding a lender to accommodate their wishes. If you decide that refinancing is not worth the costs, ask your lender whether you may be able to obtain all or some of the new terms you want by agreeing to a modification of your existing loan instead of a refinancing. Whether refinancing is right for you depends upon your own personal situation with regard to your financial objectives and goals.
BillM | http://www.hotmortgagedeal.com
Watch the video related to refinance payments
Quicken Loans client Joe from Kentucky was satisfied with his service and mortgage refinance. Joe talks about lowering his mortgage payment by $800/month, getting an interest rate that is 2% lower than his original rate, and the extra money has really benefited the family. Joe highly recommends Quicken Loans, and was absolutely thrilled with the service he received from Quicken Loans mortgage banker Doug Schoenherr. Read more reviews of Quicken Loans clients at www.quickenloansreviews.com….
Help answer the question about refinance payments
Want someone to take over the payments on my car. Payment/interest is high. Could they refinance it?I think the best way to go with getting rid of my car is to have someone take over the payments. I tried trading it in at the dealership for a cheaper car, but they want me to hang on to it as my credit is getting better quickly. If someone does take over the payments, can they refinance it to get a lower interest rate and a lower payment? Or do they keep exactly what I have? Thanks!
I think the best way to go with getting rid of my car is to have someone take over the payments. I tried trading it in at the dealership for a cheaper car, but they want me to hang on to it as my credit is getting better quickly. If someone does take over the payments, can they refinance it to get a lower interest rate and a lower payment? Or do they keep exactly what I have? It is only 9 months old with relatively low miles, 6K, perfect maintenance, washed/vacuumed weekly.
About Author
Bill leverages his 18 years of experience in the financial services industry to write informative articles for the non-industry reader. His website is www.hotmortgagedeal.com
Tags: advice, bankruptcy, brokers, finance, financial, home, management, money, mortgage, mortgages, personal, refinancing, reverse, tips
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August 29th, 2009 at 12:32 am
Well. There are a few questions that I think you are trying to figure out here. 1-what a refinance is and what they talk about when they mention the word refinance 2-what will you be able and how to pull out of the re-fi.
*A refinance is essentially a re-structuring or if you wish, taking on a brand new mortgage arrangement different from your present one. Typically, people refinance for getting MORE money out of their house through the HIGHER mortgage due to increase in the value of their property. In you case, you are at ~66% loan to value of your house (forgive decimals…), that is you ALREADY have 100-66%=34% of equity in your house. With your house price going up to 1Mill and the mortgage balance being at 340,000, your equity increases to 66%, i.e. reverse of what you have now except that you now "OWN MORE" of your house than before. Here we are logically arriving at answering question number 2, i.e.
**Should you property increase in value to 1 Mill and your mrtg balance being at 340K, you can go back up to the Loan to Value that you currently have, that is to 34% of equity in the house. So, doing simple arithmetic: A/34%*1Mill=340,000. B/1 Mill-340,000=660,000. This is the amount you can refinance to and "pull out" 660,000-340,000(mrtg balance then)=320,000. Your 320,000 will be your new money you could potentially invest into another property. The only caveat that you should be carefuly here is the potentially (!) lower rate on a re-fi. Yes, if rates go down in the market and you are able to fetch an awesome broker's deal, then possibly you might end up with 5%. Again, typically, on an INcrease to your mortgage balance (remember: you were at 340K and now at 660K), the rate may be blended between what you have NOW and what the new rate on a new mrtg term and balance gonna be. It is highly probable your rate will be either:
A/ lower than 6.5% now IF rates go down and you are able to find a better deal at the lower rate then
B/blended HIGHER if the new rate on the new funds to be added is generally higher due to market conditions
C/ blended LOWER if the new rate on the new funds to be added is generally lower due to market conditions
Anyhow, you need to do some shopping and what I call "thorough explanation meetings" with those people you are going to talk to regarding your new 660K mortgage then. Who knows, eh?
You pull the money out on the new 660K mortgage by simply getting a new type of a mortgage when the old one will be paid off (with a balance of 340K) and the DIFFERENCE will be simply deposited (by the new lender providing the new 660K mortgage) to your bank account.
Uff, I even got tired typing all of this fo ryou…Hope that helps…:-)
August 29th, 2009 at 2:04 am
Nobody did anything wrong to you. Someone offered you financing and you accepted it. You signed off on all of the terms, and there is a probably a thick stack of papers with your initials on every page acknowledging your acceptance. Where did you think the money was coming from if you borrowed 100%? Most likely, the lender was doing you a favor by keeping you from paying PMI for the last 2 years, right?
Having a first and a second does not mean you cannot refinance.
August 29th, 2009 at 10:33 am
The short answer is that a broker searches wholesale lenders to find the best loan program and/or rates for you. A banker and a lender are the same thing, except when you're talking about an actual bank like Bank of America, Wells Fargo, etc. A lender/banker usually has better rates but may have fewer programs. The rates are better, because although they have the same wholesalers, their relationships are different. Lenders have a correspondent relationship, which means they underwrite the loans and sell them on a warehouse line of credit. A typical borrower doesn't know this and usually doesn't care, except that the interest rate is usually lower with a lender. However, you may have slightly higher closing costs because the lender will have to pay interest on the line of credit. Usually the lower interest rate more than cancels out the higher costs. If you want an experienced banker/lender, contact Julie at http://primelendingonline.com
Woof.
August 30th, 2009 at 3:24 am
Chances are very high that your HELOC has a grace period, so your late payment isn't even a late payment, it just wasn't as early as the rest of your payments.
If there is no grace period, then it will go on your credit as a late payment, it doesn't matter why it was late, and explaining yourself to a teller at the bank won't do any good, but here are 2 pieces of good news.
1. It usually takes weeks or months for things to show up on your credit report. So if you are already in the final stages of refinancing, your new loan will be finalized long before this shows on your credit report.
2. One late payment doesn't really hurt you much. It will hurt a bit, but not much.
Remember, its very likely your HELOC has a grace period so this will never show up as a late payment. Call the bank that holds the HELOC to find out if this is the case.
August 30th, 2009 at 4:38 pm
The interest rate and the fees they are charging you are ridiculous.
I recommend that you cancel the transaction and start over with your credit union if you are a member of one or the bank where you have your savings and checking accounts.
I recently refinanced my house. I started with an online broker that claimed to have extremely low interest rates and low fees.
At the sign off I discovered that the loan terms the rates and the fees were completely different from what I had been told all through the process. the interest rate that they had was absolutely outrageously high.
I walked out of the title company halfway through the sign off and took all of the documents with me so that they could not possible put through a loan.
I then went back to the bank where I have my savings and checking accounts. They offered me the option of a 5.25% 15 year fixed rate loan or a 30 year 5.75% fixed rate loan. I chose the 15 year fixed because of the lower interest rate and I can afford the higher payments.
Unless your loan amount is over 80% of the fair market value there should be no mortgage insurance premium.
Also you should be able to pay the loan amount down to less than 80% of the fair market value and have the mortgage insurance premium removed.
the terms of this loan that they have given you do not look good to me.
I recommend that you cancel this transaction and start over with your credit union or the bank where you have your checking and savings accounts.
August 31st, 2009 at 3:11 am
I was in the same exact position you are about 3 years ago…and yes, my husband refinanced in his name alone….We both still remain on the deed. The mortgage company (Wells Fargo) actually suggested this since my credit was not as good as my husbands, and he could qualify for a lower rate. This is not as uncommon as you think and can be done easily as long as your husband makes enough to cover the mortgage. But PLEASE!!!!….Make sure your name remains on the deed!!!!
August 31st, 2009 at 4:53 am
A refinance pays off the existing liens on the property at the new rate and loan amount. There are many reasons people refi but the most common would be paying off an existing loan which is about to become or is already adjustable, consolidating other debts into one payment, home improvement or just lowering the existing monthly payment.
In some cases the new payment will be larger than your current payment. If you take out a lare amount of cash then there is a possibility that your payment will be higher. However if your taking out cash to pay debts then you need to determinewhat your paying per month now between your home and debts and what your new payment will be with everything consolidated. If the new loan is lower then you have a cash flow increase and that would usually be a good thing.
Your interest rate will be determined by the loan to value, your credit score, loan amount, type of loan (interest only, 5 year fixed, 30 year fixed etc…), cash out or no cash out etc…
Rates are still GREAT. Everyone who says rates are so-so right now obviously do not realize that a 30 year fixed back in 2000 averaged 8-8.5%. The fact that they are in the low 6% range to me is truely amazing.
If you would like to discuss your specific scenario drop me a line.
Good Luck
Kevin 866-562-6838 x 106
kruorock@firstratelending.com
August 31st, 2009 at 8:53 pm
There's two parts to homeownership. 1st is the actual ownership. This is determined by who is "on title." the 2nd part is who's responsible for paying the bill. This is determined by who is "on the mortgage." I've seen cases where someone is on the mortgage, but NOT on title because someone signed something without knowing what they were signing.
ON MORTGAGE: You are obligated to pay the loan–regardless of whether you live there, whether you can afford it, or whether you even own it. Even if there's an agreement that the ex is responsible for it, the mortgage company doesn't care–because your name being on the mortgage obligates you to pay. (Think similar to co-signing for your kid's car; if your kid doesn't pay, the loan co can come after you). This means if your mortgage doesn't get paid, your credit will be shot and when you apply for any future loans, NO ONE will listen to your sob story about why it didn't get paid.
I strongly recommend making sure that you do not relinquish your ownership rights by signing something called a quit claim deed (removes your name from title) unless your ex agrees to refinance your name off. Your name being on title is a good bargaining chip because NOTHING can be done to the house without your involvement (ie selling, future refinancing, or taking out equity lines/second mortgages)