Posted on: 05th Jun, 2005 10:46pm
Are you stuck with increasing monthly payments and looking for favorable rates and terms on your loan? Or, do you want to consolidate your debts and pay them off faster? All these and more can be done by refinancing your mortgage. If you want to know what refinancing is all about, check out the following topics:
What is refinancing?
Refinancing replaces your current mortgage with a new loan that has a more favorable interest rate and terms that you can afford to manage. The new loan is secured on the same property as your current loan. The new loan funds are used to pay down the current mortgage while any remaining money can be used to your best advantage.
Example: Mr. X and Mr. Y both took out a mortgage loan worth $400,000. After 4 years, both of them paid off $200,000. Mr. X then took out another home loan worth $200,000 in order to repay the existing loan balance.
On the other hand, Mr. Y took out another mortgage worth $300,000 in order to repay the unpaid loan balance which is $200,000. Mr. Y could use the remaining balance in order to fulfill other financial obligations.
The first scenario is a simple refinance while the second is that of a "cash-out refinance".
Example: Mr. X and Mr. Y both took out a mortgage loan worth $400,000. After 4 years, both of them paid off $200,000. Mr. X then took out another home loan worth $200,000 in order to repay the existing loan balance.
On the other hand, Mr. Y took out another mortgage worth $300,000 in order to repay the unpaid loan balance which is $200,000. Mr. Y could use the remaining balance in order to fulfill other financial obligations.
The first scenario is a simple refinance while the second is that of a "cash-out refinance".
5 Reasons why you should finance
If you're thinking of refinancing your house, check out these 6 reasons why a mortgage refinance might be right for you.
- You want to save more:
Your monthly payments will be reduced if you get a lower interest rate or when the term of the loan s extended. However, with an extended term, you will be paying more in interest during the life of the loan. - You want to pay down your mortgage quickly:
You can shorten the length of your mortgage by reducing the term of the loan. Your Monthly payments will go up, but you will be able to save more in interest payments. Moreover, you'll be debt free sooner. - You need extra cash to pay off credit cards:
If you have enough equity in your home, you can refinance and borrow more than the current loan balance. With the extra money, you can pay off high interest debts such as credit card balances or installment loans. This refinance loan may be tax deductible under certain conditions. - You wish to consolidate 2 loans into one:
If there's enough equity (due to high appreciation), you can consolidate a 1st and 2nd mortgage into a single mortgage. The monthly payment on the new loan might be lower than the combined payments on the first loan and the second mortgage. - You want to convert an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM):
A FRM prevents the lender from ncreasing your monthly interest payments over the life of the loan, unlike with an ARM. This means your monthly payments will remain the same. - You want to keep your name in home during divorce:
In case of divorce, you may want to keep home and at the same time and want your ex-spouse to be clear from mortgage payments. For that you should refinance the loan into a new one in your name only.
When to refinance a mortgage
"Should I refinance my house now?" This is what most people ask when they're looking to reduce their mortgage payments by taking advantage of low rates. To find the answer, check out the mortgage refinance tips below:
- Build up equity:
You can refinance when you have built up at least 10% equity in your home (Fannie Mae owned mortgages, require 5% equity). It is possible for you to refinance if you have less than 5% equity, but you may have to pay a certain amount of money in order to make up the difference in equity. - Check if mortgage refinance interest rates are low:
It's better to follow the 2% Rule. The 2% Rule allows you to enjoy the benefits of home refinance if the refinance interest rate is 2% lower than your current loan's interest rate. The savings in interest will help you recoup the costs of the new loan, provided you aren't planning to move soon (the break-even period). However, there are no-cost as well as low-cost refinance loans where the costs of getting the loan are included. However, these loans have comparatively higher rates than loans that do not include the refinance costs and your options are limited when the credit market is experiencing a slump. Learn more about the when to refinance rule of thumb. As always, compare mortgage refinance interest rates offered by different lenders in order to get the best interest rate. This will help you save more over the life of the loan. - Pay off any late payments:
There is no such limit on the number of times you can go for home refinance loans. Most lenders prefer that you have no late payments in the last 12 months before you refinance. - Remove negatives and improve your credit score:
Get your credit report from the bureaus and review it for any negative items (late payments, collections, etc) and inaccurate items. Dispute any inaccurate items and remove them from the report. Pay off as much of your debt as you can. Otherwise, you won't get a low interest rate and may not even qualify for a refinance loan. Of course, there are lenders in the subprime lending market who may offer you a mortgage refinance loan, but it's better to avoid them as they'll charge higher interest rates and fees and could be fraudulent.
When not to refinance
Refinancing is not a good idea if:
- Your property value has gone down:
If your property value goes down and you refinance up to 80% of the appraised value, your original mortgage amount may be higher than the amount you borrow. Therefore, the new loan will not be enough to pay down the existing one. - You have been paying off the first loan for a long time:
If you are almost finished paying off a 30 year fixed mortgage, then refinancing is not a good idea. You will lose equity in proportion to the amount you borrow over and above the remaining loan amount. - You have used up enough equity:
Refinancing is not a good idea if you have already reduced the amount of your equity by taking out a 2nd mortgage or a home equity loan. Refinance loans for 100% of the loan are rare, and with the mortgage market currently in a crisis, are hard to find. - You have a few years left on the current loan:
If there are only a few years left on your current loan, then refinancing is not a good idea. Taking out a new loan will only put you deeper into debt just when you were about to become debt free.
Refinancing makes sense for the right reasons and at the right time. You need to decide whether to opt for a simple interest rate adjustment refinance or a refinance that will provide you with extra money. If you'd like to check out what mortgage refinance rates and terms are currently available, request a no-obligation free mortgage refinance quotes from our community lenders and brokers.
Related Readings
Related Forum Discussions
- When to refinance a mortgage along with Heloc
- Should I need a title insurance at the time of refinance?
- Is it possible to refinance after bankruptcy?
- Should I refinance my house to consolidate debts?
- Can I refinance my home which is filed for Federal tax lien?
- Should I refinance my house or pay more towards the principal?
- Is the cash from refinance taxable?
- How many times can you refinance a mortgage?
- Should I refinance my house to add my wife to mortgage?
- Is it possible to combine ARMs and then refinance?
Are you burdened with rising monthly payments and seeking better terms and conditions on your mortgage? Or, are you looking to consolidate your unpaid debts and get rid of them faster? All these mortgage scenarios and many more can be accomplished by mortgage refinancing. To get the basic idea on refinancing, go through these topics:
| Do it yourself! |
What is mortgage refinance?
With mortgage refinancing, you can replace your original mortgage with a new one with better terms and conditions but the new mortgage should be within your affordable limit. The same property that you used as collateral to secure the original mortgage is used to secure the new loan also. The new loan proceeds are utilized to pay off the existing mortgage. In case there is any remaining money after paying down the original mortgage, that amount can be used to meet other financial obligations.
Example: Suppose each of the two borrowers A and B took out mortgage loan worth of $500,000. Again, say after 5 years, both A and B paid down $250,000. So, for both these borrowers, remaining unpaid mortgage amount is $250,000.
Borrower A then took out another loan worth of $250,000, so as to repay the remaining balance on the existing mortgage. This depicts a case of simple refinance.
Borrower B then took out another loan worth of $350,000. Out of this new loan amount, B used $250,000 to pay down the original mortgage. B could use the remaining $100,000 to meet other financial obligations. This describes a case of cash out refinance.
The first scenario is a simple refinance while the second is that of a "cash-out refinance".
Example: Suppose each of the two borrowers A and B took out mortgage loan worth of $500,000. Again, say after 5 years, both A and B paid down $250,000. So, for both these borrowers, remaining unpaid mortgage amount is $250,000.
Borrower A then took out another loan worth of $250,000, so as to repay the remaining balance on the existing mortgage. This depicts a case of simple refinance.
Borrower B then took out another loan worth of $350,000. Out of this new loan amount, B used $250,000 to pay down the original mortgage. B could use the remaining $100,000 to meet other financial obligations. This describes a case of cash out refinance.
The first scenario is a simple refinance while the second is that of a "cash-out refinance".
5 Reasons that make refinancing sensible
There are some strong reasons which make mortgage refinance a very sensible move. Here we delve upon 5 of those -
- To reduce monthly payment:
If the mortgage rate is lowered or if the mortgage term is extended, your monthly payment amount gets reduced. With reduced monthly payment, you can pay off your mortgage with more ease. In case the term of the loan is extended, you have to however pay more in interest during the whole life of the loan. - To switch from ARM to FRM:
Fixed rate mortgage (FRM) offers you the certainty of making fixed payment over the term of the loan. Whereas, in case of adjustable rate mortgage (ARM), the monthly payment amount may rise or fall, depending upon the prevailing mortgage rate. So, in case of ARM, the monthly payment amount is not fixed; rather it is uncertain. If you are looking for certainty in payments, then you can convert your existing ARM to an FRM through mortgage refinance. - To repay mortgage faster:
If you want to pay down the mortgage early, then you can shorten the term of the loan. However, here your monthly payment amount increases. Here, over the term of the loan, you save more in interest payments. You also attain property ownership early. - To combine two loans into one:
If you have adequate equity in your property, you can then consolidate your first mortgage and the second mortgage into a single mortgage. The main advantage of this type of consolidation is that the monthly payment on the single loan is less than the combined payments on the 1st mortgage and the 2nd mortgage. - To pay off high interest debts:
If you have sufficient equity in your home, you can opt for a cash out refinance. You can use the remaining money to pay high interest debts such as credit card bills, car loans, installment loans etc.
What is the best time to refinance?
You may not always be eligible for refinancing or the situation may not always be conducive for refinancing. You have to time your move correctly so as to reap its benefits. You need to check out these crucial things carefully before applying for mortgage refinancing -
- If you have built up equity:
You may be eligible for refinancing when you have built up equity of at least 10% in your home. However, for mortgages owned by Fannie Mae, the equity requirement is 5%. It is possible to get the refinance approval even with less than 5% equity, but in that case you may have to pay a certain sum of money to compensate for the deficiency in equity. - If the refinance rate is sufficiently low:
If the current mortgage rate is sufficiently lower than the rate on the original mortgage, then it may be wise to opt for refinancing. Here, you need to follow the 2% Rule. As per the 2% Rule, refinancing is beneficial for you in case the refinance rate is 2% lower than the rate on the original loan. Here, the savings accrued from low rate outweigh the costs of the new loan after a certain period of time, which is called the break-even period. To get benefits of refinance, you have to stay in the house at least till the break-even period. - If you have removed negative items and paid off debts:
Before plunging into refinancing, obtain your credit report from the credit bureaus and review it carefully. If you find some negative items such as collections or late payments, dispute those items immediately and get those items removed from your report. Prior to refinancing, pay down as much debts as possible. All these will work in your favor in getting the refinance approval. - If you have no late payments in past 1 year:
If you have history of late payments in the past 1 year, then your refinance appeal may be rejected. So, before refinancing, make sure you don't have any late payments in the past 1 year.
When refinancing is not a good idea?
Despite the fact that refinance has several benefits, it is not always a good idea to go for mortgage refinancing. There are some cases when your refinance appeal is rejected by the lender or it may not fetch the desired returns. Here are some cases when refinancing is not a good idea at all-
- If the property value has declined sharply:
If the value of your property has declined appreciably, the remaining balance on your original loan may be higher than the refinance loan amount. In other words, with the new loan proceeds, you won't be able to pay down the original mortgage loan. - If you have already used up your equity:
Your equity is the key to get approved for refinancing. If you have already used up your equity by taking out a home equity loan (HEL) or a home equity line of credit (HELOC), then going for refinancing would not be a good idea. - If you have only a few years left on the existing loan:
It does not make good sense to go for refinancing if you have only a few years left on your existing loan. It is not rational to refinance the loan which you have almost paid off. If you have almost paid down a 30-year fixed rate mortgage, then it is unwise to opt for refinancing. After all, refinancing is just like taking out a new loan and all the costs associated with taking out a fresh loan are applicable here too.
If you have the right reasons and if the time is right, then you can surely seek for mortgage refinance. However, before making the final decision, do the necessary research, take quotes from different lenders, make a comparative analysis and choose your lender.
Related Readings
Related Forum Discussions
- When to refinance a mortgage along with Heloc
- Should I need a title insurance at the time of refinance?
- Is it possible to refinance after bankruptcy?
- Should I refinance my house to consolidate debts?
- Can I refinance my home which is filed for Federal tax lien?
- Should I refinance my house or pay more towards the principal?
- Is the cash from refinance taxable?
- How many times can you refinance a mortgage?
- Should I refinance my house to add my wife to mortgage?
- Is it possible to combine ARMs and then refinance?
meta title:
Refinance a mortgage at the right time and for right reasons.
guest, i'd have to opine that neither of these is necessarily a great move for you.
my reasoning: with your investment property, you'll pay a severe premium based on your credit score (upwards of 3 additional points). if you are attempting to take some cash out of that equity you have, you'll be penalized even more for that.
as for your primary residence, you could find yourself being limited to 85% of the property value (if a cash-out), which would be a loan of about $80750 based on your zillow citation. the second mortgage you mentioned may cause it to be cash-out. fha is your best alternative for a primary residence refinance since you'd only pay an extra quarter of a point for the credit score - whereas with a conventional loan it's an additional 1.75 points.
as for the appraisal situation, that's the essence of the situation. the lender can tell you if you'll be approved in theory, subject to appraised value. however, they can't promise anything until the value is determined. and, of course, that means you pay the appraisal cost up-front - it is a third party fee, not a lender fee, and the third party deserves to get paid for the work done, after all.
i've not given you much hopeful information, but it's the facts as i see them in your case. if you're simply trying to refinance to lower your rates with no cash coming back, it may be worth the trouble.
my reasoning: with your investment property, you'll pay a severe premium based on your credit score (upwards of 3 additional points). if you are attempting to take some cash out of that equity you have, you'll be penalized even more for that.
as for your primary residence, you could find yourself being limited to 85% of the property value (if a cash-out), which would be a loan of about $80750 based on your zillow citation. the second mortgage you mentioned may cause it to be cash-out. fha is your best alternative for a primary residence refinance since you'd only pay an extra quarter of a point for the credit score - whereas with a conventional loan it's an additional 1.75 points.
as for the appraisal situation, that's the essence of the situation. the lender can tell you if you'll be approved in theory, subject to appraised value. however, they can't promise anything until the value is determined. and, of course, that means you pay the appraisal cost up-front - it is a third party fee, not a lender fee, and the third party deserves to get paid for the work done, after all.
i've not given you much hopeful information, but it's the facts as i see them in your case. if you're simply trying to refinance to lower your rates with no cash coming back, it may be worth the trouble.
Exactly what does 5.125% with 1.875 points mean?
the first number means the interest being calculated on your loan will be at 5.125%. as an example, based on $100,000, the interest for one month will equal $427.08. that's calculated by multiplying $100,000 by 5.125% and dividing by 12 months (100000X.5125/12). Each month you pay for a loan, the interest will decline (quite slowly at first and then more so as time goes on).
the 1.875 points mean that you are paying 1.875% of the loan amount as a fee to the lender (fee = points). again, using $100,000 as a guide, that would mean your points paid are equal to $1,875.00. each point is equivalent to one per cent of your loan amount.
the 1.875 points mean that you are paying 1.875% of the loan amount as a fee to the lender (fee = points). again, using $100,000 as a guide, that would mean your points paid are equal to $1,875.00. each point is equivalent to one per cent of your loan amount.
My wife and I would like to refinance our double wide. We own the property and the house is on pier settings and tied down with no axles under it. Both of our credit scores are 790+. The balance on our mortgage is less than 57,000 and I am assuming an appraisel value of 90,000 to 120,00 for the property and home. Why can't I find a bank willing to refinance me for 75,000.
confused about banks,
if you are going to refinance it on both (your and your wife's name) then i do not find any reason why banks will decline it.one reason may be (i am just guessing) if you or either your wife have lost full time job.
So, only in this condition it could be little difficult to convince bank officials but still you can do it.
keep in touch........
:arrow: :arrow: :arrow:
if you are going to refinance it on both (your and your wife's name) then i do not find any reason why banks will decline it.one reason may be (i am just guessing) if you or either your wife have lost full time job.
So, only in this condition it could be little difficult to convince bank officials but still you can do it.
keep in touch........
:arrow: :arrow: :arrow:
Every bank that I have talked to said that since my double wide is not on a permenant foundation there is nothing that they can do.
confused - that's pretty standard requirements for lenders as it concerns mobile and modular housing. there are lenders throughout the usa who grant loans on mobile and modular housing, so my thought would be that you ought to be able to locate one who could assist you.
i am not personally aware of who you might find to deal with but an internet search will afford you lots of possibilities.
i am not personally aware of who you might find to deal with but an internet search will afford you lots of possibilities.
we currently have 2 mortage loans. we JUST found out they are interest only loans. If we refinance will our monthly payments go down eventhough we don't have very much principal built up? We have been told by the lender we are working with that we can only refinance one of the loans because we have very little principal built up. We had a penality stipulation, we could not refinance before 7/1/09. What are your thoughts?
JUST??? did you never read any of the documents you signed at the closing, nor pay attention when you would periodically receive statements from your lender?
the only way your monthly payments will be reduced when you switch from interest-only payments to payments of full principal and interest is if your interest rate is going to be reduced markedly. the far greater likelihood is that your payments will be substantially higher, so as to allow for reduction of the principal each month.
the only way your monthly payments will be reduced when you switch from interest-only payments to payments of full principal and interest is if your interest rate is going to be reduced markedly. the far greater likelihood is that your payments will be substantially higher, so as to allow for reduction of the principal each month.
if you are sef employed can you use your bank statements for proof of income.
are you there
yes, guest, there are people here online.
brenita, you used to be able to do what you propose to support claimed income, but i believe that's gone now.
brenita, you used to be able to do what you propose to support claimed income, but i believe that's gone now.
can you dispute a low appraisal for refinance due to the market?
bella, if you have reason to believe that an appraisal is not valid and you have information that backs up your belief, then you can certainly present that information and have it considered.
I have an fha loan and want to do a streamline refinance. How many mortgage companies supply this service and how do I get in touch with them?