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.
it's pretty clear that your adjustable rate is likely to be going down this year. rates are low, and the indices on which arms are based are even lower. if you don't feel bad about your chances with the adjustable rates, then sticking with it may be worth your trouble.
when they offered you $128K, i gather that means that you'll have to pay down the difference between the loan amount and the current balance, along with closing costs - right?
honestly, if i were in your shoes, and i didn't have any difficulties in making payments, i have to say i'd sit still and let the rates take care of themselves. you'll presumably have another opportunity in a year, and of course, if the economy improves, your property value may stabilize at worst and improve at best.
when they offered you $128K, i gather that means that you'll have to pay down the difference between the loan amount and the current balance, along with closing costs - right?
honestly, if i were in your shoes, and i didn't have any difficulties in making payments, i have to say i'd sit still and let the rates take care of themselves. you'll presumably have another opportunity in a year, and of course, if the economy improves, your property value may stabilize at worst and improve at best.
I no longer have to pay PMI; if I refinance, will it come back on my loan?
sherri, if the loan to value ratio on your new refinance loan exceeds 80%, mortgage insurance would be required (conventional loan)
if you are planning on getting an fha loan in your effort to refinance, you'll pay mortgage insurance premium (MIP) regardless of the loan to value ratio.
if you are planning on getting an fha loan in your effort to refinance, you'll pay mortgage insurance premium (MIP) regardless of the loan to value ratio.
Three years ago I bought a mobile home in Ca. 5% down, the owner held the note. May 1st the note becomes due, built in 1974, I'm having a hard time finding a lender. Any advice? seamles1
Mobile homes build prior to 1976 hardly qualify for loans. That's the reason why you are facing issues in finding a lender. You may contact the retailers selling mobile homes in order to get a personal property loan for your home. However, these loans are available at a higher interest rate.
seamles1 i agree with that assessment; you may find a local mobile home dealer who can arrange financing for you, or suggest another source for financing. shop around a bit by calling local banks and/or credit unions to see if you have a shot with them to obtain financing.
most lenders are leery about lending on mobile homes in general, and the age of your unit makes it especially hard to find financing. i hope you find success.
most lenders are leery about lending on mobile homes in general, and the age of your unit makes it especially hard to find financing. i hope you find success.
PLS FORGIVE MY IGNORANCE, MY WIFE AND I N EARLY NON-CONTESTED DIVORCE, OUR NAMES ARE ALL DOCUMENTS, HOME PLUS HONE EQITY LINE CEDIT COME TO 370,000, NEGATIVE EQUITY >120,000; NEITHER CAN REFINANCE ALONE OR TOGETHER, WE BOTH TRUST EACH OTHER, NO MINOR CHILDREN CAN WE CONTINE DIVORCE CHANGE DEEDS/TITLE ONLY AND CONTINUE SAME MORTGAGE PAYMENTS? WILL WE HAVE TO INFORM LENDER? THANKS
Hi MOBEE,
If there is a change in the property deed, then the lender will want anyone of you to refinance the mortgage. Thus, that person would become solely responsible for the mortgage. You and your wife can sell off the property and pay off the mortgage. This will free both of you from the liability of paying off the mortgage.
Take care.
If there is a change in the property deed, then the lender will want anyone of you to refinance the mortgage. Thus, that person would become solely responsible for the mortgage. You and your wife can sell off the property and pay off the mortgage. This will free both of you from the liability of paying off the mortgage.
Take care.
if you wish to continue making the payments as is, go ahead and do so.
what you need to decide, most of all of course, is how you're going to work out living arrangements, and how to deal with that question as one of you has a new rent or mortgage payment to make.
as sara noted, your lender will be interested in what you're doing, so as to protect their investment in the home.
what you need to decide, most of all of course, is how you're going to work out living arrangements, and how to deal with that question as one of you has a new rent or mortgage payment to make.
as sara noted, your lender will be interested in what you're doing, so as to protect their investment in the home.
Hi,
Our mortgage is under my wife's name...and joint title...fast forward 5 years after we bought the place, my income is our main income, and my credit is much higher than my wife's.....can we refi from her being on the mortgage to just me being on the mortgage??? I know we can refi from her on the mortgage to both of us....but, when doing so, the banks will take the lowest med scores, i.e, my wifes....
In summary, when both spouses are on the title, but only spouse A is on the loan, can you go from A only on the loan to B only? or must be joint?
thanks so much
Our mortgage is under my wife's name...and joint title...fast forward 5 years after we bought the place, my income is our main income, and my credit is much higher than my wife's.....can we refi from her being on the mortgage to just me being on the mortgage??? I know we can refi from her on the mortgage to both of us....but, when doing so, the banks will take the lowest med scores, i.e, my wifes....
In summary, when both spouses are on the title, but only spouse A is on the loan, can you go from A only on the loan to B only? or must be joint?
thanks so much
Hi VK,
If you have excellent credit scores and stable income, you will be able to refinance the loan in your name. I don't think the refinance has to be in joint names.
If you have excellent credit scores and stable income, you will be able to refinance the loan in your name. I don't think the refinance has to be in joint names.
THE MODIFICATION GROUP'S COMPANY PROFILE Negotiation Experts: Our highly dedicated employee's at TMG are experienced negotiators that will secure your home with the lowest fixed rate available. We will reposition all the late payments back into your loan bringing the account current, lower your interest rate and payment making it easier for you to afford. Our Commitment: TMG, LLC is proud to have developed beneficial relationships with lenders, inspectors, contractors, and a wide range of housing professionals. We pride ourselves on building a solid foundation for your home to rest upon. Whether you are saving your home, purchasing, selling...we ensure that you have the support you need to make sound decisions and receive the best loan possible. • Are you in a loan you cannot afford?• Are you late on your mortgage payments?• Do you think you are the victim of predatory lending?• Are you having difficulties refinancing?• Are you in an ARM loan that keeps adjusting up and up?• Are you no longer able to afford your monthly payment?• Is your mortgage set to adjust soon?• Has your home decreased in value?• Have you had a notice of default or are you close to foreclosure? WE CAN ASSIST YOU TO RESTORE YOUR FINANCIAL FREEDOM! Call in today! HERE IS MY CONTACT INFORMTION:Aaron Kinkoff 6444 Pearl Rd. Parma Heights, Oh 44130 (877) 617-4383 Ext. 1006
to anyone who decides to cast his lot with aaron kinkoff, i say this: be very wary of what you're doing and make sure you read every word and have someone you trust implicitly review it all with you - preferably your own lawyer. there are too many modification scams out there not to be cautious.
this is nothing against you, aaron - i don't know anything about you. that's what makes me say what i say - my lack of knowledge of you.
this is nothing against you, aaron - i don't know anything about you. that's what makes me say what i say - my lack of knowledge of you.
My credit record is below 620, can I qualify for refinancing in other bank? I applied but the bank said I don't qualify. The reason that I applied, I can hardly pay the high monthly amortazation due to my present financial condition. Is modification possible? Is the processing faster? What are the requirements? Is a short sale a good alternative? What are the advantages?
I have a current loan w American Home Mortgage at 8% ARM and am wanting to refinance it immediately. I am on unemployment and cannot afford it going up and down constantly. My house is at zipcode 76301 for $80,000, I have had it for approx 4 years and y balance is like $78,000. I really want to do the Obama refinance but don't know where to turn? Doesnt he have something for people on nemployment with houses?