Mortgage Refinancing Loan Terms – Are 10 or 15 Year Terms Better?

10 Year Vs. 15 Year MortgagesThere is a lot of decision making involved in refinancing a mortgage loan. Before applying for a mortgage, you should figure out what your budget is, so you will know how much you can spend on fees, down payment, and the mortgage itself. Also, it is very important to come to a conclusion regarding what your future plans are, like how long you want to live in the home that you are buying. All these factors will help you better determine what kind of term you are looking for in a mortgage.

Why You Should Opt for Shorter Terms

Paying off a mortgage in 30 years is very common, and will probably work for you as well. Even if your interest rate will be slightly higher, your monthly mortgage payments will be lower, so you will have an easier time paying it off. That sounds great, but taking pretty much half your life to pay off a mortgage sounds a bit daunting. A good alternative is to get a 15, or even 10, year mortgage loan, which will have a lower interest rate but larger monthly payment. However, even though comparing a 15-year mortgage to a 10-year mortgage seems much easier than comparing a 15 and a 30-year, there are some things that you need to keep in mind before deciding on either one (Read: Home Refinancing Objectives: The Basics).

Differences between a 10-Year and a 15-Year Mortgage

Usually, paying off a mortgage loan in less years means that you will pay less in interest. The difference in interest may seem very small, less than 1 percent, for example, but that means thousands of dollars over time (even tens of thousands of dollars) depending on how large your mortgage loan is. The difference in interest between a 15-year mortgage and a 10-year mortgage will probably be even less than .50 percent, but it will still be a huge difference in the interest that you will be paying during the loan repayment period.

The downside is that, the shorter the loan term, the larger your monthly mortgage payments will be. Depending on your budget and plans, this might only be a small disadvantage. If you can afford the monthly payments and plan on paying off your mortgage as soon as possible, getting a mortgage with a lower term is the way to go.

If you are unable to make a larger mortgage payment each month, paying off your loan in 15 years instead of 10 is a good alternative. Your monthly payments will be lower, but your interest rate will be higher, so you will spend more overall than if you paid off your mortgage in 10 years. However, you have the option of making additional principal payments which will result in paying off the debt in the same amount of time as a 10-year mortgage, and also give you the option of skipping a principal payment if money is tight in any particular month.

The amount of years that you need to pay off a mortgage loan can make a large difference in how much you spend on your mortgage. Longer terms mean that you pay more overall, but you can do it much easier, shorter terms mean that you pay less overall, but at the cost of having to come up with more money each month. Ultimately, deciding between refinancing into a 10-year or a 15-year mortgage depends on how much you are willing to spend on your mortgage each month and your future plans.

Do You Make These Mistakes? Don’t Kill Your Mortgage Refinance!

Do You Make These Mistakes- Don't Kill Your Mortgage Refinance-150x150Making lower payments on your mortgage is a great way to save money and make your life easier. The most common way in which you can reduce your monthly mortgage payment is by refinancing. This can also be the most beneficial way, which can save you a significant amount of money. But going from saving money to losing money is really easy when it comes to refinancing.

Refinancing might seem like a great idea at first glance, but it is not for everyone. There are several factors that have an influence on whether refinancing is good or bad for your situation. When refinancing, many home owners often make mistakes that, even if they won’t create problems in the beginning, will end up costing them in the long run. Refinancing is more complicated than it was years ago- the requirements are stricter, more paperwork is needed- so it’s easy for a borrower to make a mistake.

Here are the most common mistakes that borrowers make when refinancing, to help you avoid making them when you decide to refinance.

Convincing Yourself That Your Home is Worth More Than It Is

Being unrealistic about the value of your home is a sure way of ruining a refinance. Many areas have seen a decline in home prices, so your home’s price has probably fallen too. Most refinances today are denied because the home is appraised too low, so the lender won’t give out loans that are larger than the appraised value.

Not Shopping Around

You might have a great relationship with your current lender, and he might give you a special deal on your refinance, but it never hurts to shop around for an even better rate. Lenders can also reduce or even waive certain closing costs, which will also influence how much you will be spending on refinancing. Even a small difference in interest rate can mean a lot of money over time, so it’s important to look around, see which lender can offer you the best deal.

Not Taking Closing Costs into Consideration

One of the biggest reasons many home owners choose not to refinance are the high closing costs. The closing costs are one of the main factors that should be taken into account when deciding whether to refinance or not. Interest rates offered by most lenders will probably look very attractive, but you can end up losing money if you don’t take closing fees into account.

Letting Your Credit Score Decrease

Even if you find a very attractive refinancing rate and a lender who is willing to waive some of the closing costs, refinancing with a low credit score will most likely result in a waste of time. Not having a good credit score will attract high interest rate, or even the lender’s refusal to give you a new loan.

Creating New Debt During the Refinance

New credit cards or loans can seriously hurt your chances of being able to refinance. Additionally, you’ll have to provide even more documentation to justify the new debt. It’s best to hold off acquiring new debt until the refinancing process is over and your new loan is granted. It’s always best to keep new debt low, even after refinancing, and talk to your lender about what the implications are.

Refinancing Multiple Times

Refinancing repeatedly in a short period of time will not save you money. Each time you refinance, not only do you have to pay some hefty closing costs, but you are also resetting your mortgage, meaning that over time you will pay significantly more in interest. You can also end up having to still make mortgage payments during your retirement years.

Your decision to refinance should not be affected only by the low interest rates. Always take into consideration the closing costs when trying to figure out if refinancing is the right step for you. Not paying attention to all of the details can become very expensive with refinancing. All mistakes can be avoided by doing a little research, making refinancing an easier process, which will truly save you some money.

Addicted to Refinancing Your Home Multiple Times? You’re Not Alone

Addicted to Refinancing Your Home Multiple Times- You're Not Alone- 150x150A few years ago, when the housing market was booming, many home owners started to take advantage of the lower interest rates by refinancing their mortgages. For many borrowers refinancing is a great opportunity to save money on their mortgage, but there are other factors besides the interest rates that should be considered when determining if refinancing is a good choice.

Refinancing a mortgage multiple times has become a trend among borrowers, with more than 2.2 million refinances recorded since 2009. Because interest rates are still near record lows, there really aren’t any reasons for home owners to stop refinancing. Normally, refinancing a mortgage is an expensive process, so the high cost doesn’t always financial sense for home owners to go through with it, even if the interest rate on the new loan is significantly lower.

But lenders are coming up with ways of attracting refinances by lowering the closing costs or waiving certain fees, making refinancing much more accessible. Closing costs are not the only factor of what home owners should consider before refinancing. Many mortgage loans also include a prepayment clause, which force the borrower to pay a steep penalty if they wish to pay off their mortgage earlier. Some lenders are even willing to waive the prepayment penalty. Don’t be fooled, though. Lenders usually recover the waived and lowered fees by charging a higher interest rate.

Should You Refinance Multiple Times?

Through history, as interest rates went down, the number of home owners who refinanced went up. Right now, with interest rates on the rise, but still near record lows, and the job market recovering, people are in a rush to refinance their mortgages. Refinancing more than once makes sense, but only if you do your homework, and come to the conclusion that it will actually save you money. Many borrowers refinance thinking that a lower interest rate will save them money, while the cost of refinancing may actually cause them to end up with a more expensive loan, which will result in losing money.

Refinancing and getting a lower interest rate will not only reduce your monthly mortgage payment, but will also reduce the principal on your mortgage. Having a lower mortgage payment will free up money that can be used to make other purchases or even pay off other debt, which will increase your credit score, making future loans more accessible.

The downside to mortgage refinancing is that, with each refinance, you are basically resetting your mortgage term to a longer term, such as a 30-year term. This means it will take you a longer time to pay off your debt. Refinancing also requires a lot of running around, gathering several documents and more scrutiny on your credit score. The biggest downside of all is that refinancing is normally an expensive process, which can actually cause you to lose money.

Refinancing isn’t really a viable option for borrowers with low credit scores. Even if the lender is willing to waive some of the closing fees, applying for refinancing with a low credit score will either get you rejected, or you may find that there is no way to receive a loan with a lower interest rate.

Refinancing multiple times pays off for many home owners, especially if they manage to secure a lower interest rate and the lender is willing to waive some of the closing costs. When trying to determine if refinancing again is a good idea, make sure that you take all of the costs into consideration, or you might end up paying more than on your previous mortgage loan. Saving money by refinancing is more than just getting a lower interest rate from your lender. If you do the research and come to the conclusion that refinancing again is worth it, then doing it multiple times is a wise choice.

See How Easily You Can Refinance Your Mortgage the Second Time Around

See How Easily You Can Refinance Your Mortgage the Second Time Around-150x150Refinancing can save you lots of money, especially right now with interest rates near record lows. But refinancing can quickly turn ugly if you don’t pay attention to every detail. Most times, refinancing your mortgage looks great at first glance, but you need to know when to refinance and how often.

Lately, interest rates have started to increase again, but rates were at record lows recently. Many home owners have taken advantage of the new interest rates and refinanced their mortgages. But some have been doing it again and again without seriously taking into account the negative aspects of refinancing multiple times.

Reasons for Refinancing a Second Time

Generally, home owners are advised to not refinance more often than every 3 years because the cost of refinancing is high and can quickly become a burden, making loans actually cost more than if they had stayed with the initial interest rates. The truth is that if you can refinance for a much lower interest rate and plan on living in the home for a long time, then refinancing should be considered, even if it hasn’t been 3 years since you last did it. Here are a few reasons why refinancing a second time is an attractive option.

  • First, and most important, the more you can lower your interest rate, the more sense it will make to refinance again. Lowering your interest rate by, for example, 1 percent will result in great savings, which will far exceed the refinancing cost. Interest rates are on the rise right now, but they are still low, so refinancing again might still make sense. Before refinancing a second time, you must make sure that what you save in interest costs will exceed the cost of the refinance; otherwise, you will be losing money.
  • Refinancing again can also help you remove a borrower from your mortgage. If, for example, you bought the home together with a friend or family member and one or both parties no longer wants to have their name on the mortgage, this can be rectified by refinancing. Most lenders will also require you to refinance if you want to remove your spouse from the mortgage after divorce.
  • Refinancing for a second time before the recommended 3 years also makes sense if your financial situation changes. For example, if your income decreases, you might not be able to pay your mortgage anymore because the monthly payments are too large, so refinancing into a mortgage with longer terms will lower your payments. Changes in your financial situation can also mean that your credit score has improved, which will help you qualify for a better interest rate.
  • A cash-out refinance can make sense, even if you just recently refinanced. This kind of refinance occurs when you take out a larger mortgage than the one you have now and receive the difference as cash. A cash-out refinance can provide money you might need for repairs, improvements, medical bills, or school tuition, but you need to understand that this will lower the equity in your home, so you will receive significantly less money if you decide to sell your home (Read: Is Cash-Out Refinancing a Good Idea?).

Refinancing your mortgage the second time around should not pose any difficulties, unless your credit score has gone down or you  are facing other financial issues. You must keep in mind before starting the process that refinancing is expensive. Many home owners are so blinded by the new lower interest rate that they forget to take the refinancing cost into account and end up actually paying more than they did for their initial loan.

Tips and Tricks for Reducing Your Mortgage

Tips and Tricks for Reducing Your Mortgage- 150x150Depending on the amount borrowed for your mortgage loan and many other factors, like the interest rate and the loan repayment term, monthly mortgage payments can be as high as several thousand dollars and is most likely your largest monthly bill. Reducing your mortgage will make payments smaller, saving you money and making your life easier. Whether your monthly mortgage payment is very high or not, saving money is something that benefits everyone, especially those who are going through financial issues. Fortunately, there are some tips and tricks for reducing your mortgage that every home owner should know about.

Tips and Tricks

  1. Refinance your home. Taking out a new loan, with different terms, to pay for your mortgage could be the best way to save money and reduce your mortgage. Refinancing into a lower interest rate loan will drastically reduce your monthly payment and make your mortgage easier to pay. However, the mortgage refinancing process can be fairly expensive, so you should take all costs into account if you decide to take this route. Also, because you will mostly be paying interest towards the beginning of the loan, it’s important to refinance as soon as possible and obtain a lower interest rate, saving more than if you refinanced later into the repayment period when you won’t be paying so much interest on the loan.
  2. Cancel private mortgage insurance. If you couldn’t afford to make the 20 percent down payment, then you are probably paying for mortgage insurance, as this is required for those who can’t make the minimum down payment. Private mortgage insurance can mean thousands of dollars monthly. If you have repaid enough of the loan to gain at least 20 percent equity in your home, then you can contact your lender and discuss cancelling your private mortgage insurance. Your lender will have your home appraised to determine its value, and cancel your private mortgage insurance. Lenders don’t drop the insurance on their own, so you will have to contact them about this when the time comes.
  3. Shorten the term of your mortgage loan. While shortening the loan term won’t make your monthly mortgage payments smaller but will actually increase them, it will significantly lower the overall cost of the loan. Paying off your mortgage loan quicker means you will be paying less in interest, which can save you thousands of dollars. If you come to the conclusion that you can afford to make larger monthly payments toward your mortgage loan, then shortening the length of your loan is a sure way of reducing your mortgage.
  4. Extend the term of your mortgage loan. If monthly payments start to become a burden, then a way of reducing them is if you extend the length of your loan, for example from a 15-year to a 30-year mortgage. However, this means that you will be paying significantly more in interest, which will increase the overall loan value. You will still be able to make extra payments on your loan, which will pay it off quicker, and your monthly payments will be much lower.
  5. Make extra payments on your loan. While this doesn’t sound like something that will help you reduce your mortgage, making extra mortgage payments will help you pay off the loan quicker and save thousands in interest costs. Of course, if you can make regular extra payments, you should just reduce the term of your loan and pay the higher monthly payments. But making a few extra payments now and then will still be of great help in reducing the cost of your loan, and diminish its term.

Being able to reduce your mortgage depends mainly on your financial situation and budget. Take some time to carefully evaluate your monthly expenses and decide if you can make some changes to your mortgage in order to help you save money.

Quick Tips on Mortgage Refinancing

Quick Tips on Mortgage Refinancing- 150x150Refinancing can be a great way of reducing your interest rates and monthly mortgage payments. With refinance rates on the rise but still near record lows, now may still be the most opportune time to refinance, as rates are predicted to continue to increase in the future. Unless you’re a few years from paying off your mortgage, by refinancing you can lower your monthly payments and free up cash that can be invested or used to remodel and repair your home.

Refinancing also has its negative sides, like being a fairly expensive process, but it is up to you to take a close look at your financial situation and decide if refinancing is worth the cost, and if it will, indeed, save you money over time. Here are a few quick tips for those who are considering refinancing their mortgage:

Quick Tips

  • Check your credit score. Before applying for refinancing, make sure that your credit score is in great shape. Refinancing takes a lot of work and time, and all this would be wasted if you get rejected because your credit score is not good enough.
  • Don’t rely on the advertised interest rates. Lenders will usually advertise their best interest rates in order to attract more customers. The truth is that the rate that you will get will probably not be the one that you have seen advertised. Your interest rate will depend on many factors, such as the size of the mortgage loan, mortgage points, if the rate is locked in and many others.
  • Know what you want. Carefully weigh in on all of your options before contacting a lender to refinance your mortgage loan. Knowing what type of a loan you want, like a 15-year or 30-year mortgage, can make it easier for the loan officer to find a better rate for you. Also, it’s recommended that you know how much you are willing to spend on points in order to get a lower interest rate.
  • Contact your current lender first. If you are a good borrower, pay your mortgage on time and have good credit, chances are that your lender will do anything in his power to keep you as a customer. Your lender may even offer to waive some of the refinancing costs, like appraisal and inspection fees.
  • Shop around for a refinance. Closing costs and interest rates vary from one lender to another, so it doesn’t hurt to shop around a little. You might actually be pleasantly surprised and find a lender that will give you a much better rate than the others or waive some of the closing fees, making refinancing cheaper than you thought it would be.
  • Try to avoid “no cost” refinancing. “No cost” doesn’t actually mean free. The closing costs are bundled into the mortgage, which means that you’ll be paying interest rate on that amount, making the closing costs more expensive than they would have been if you paid them beforehand.
  • Save money by avoiding tax and insurance escrow services. Having a little discipline and paying your property taxes and insurance on time will save you money over using an escrow service that charges for something that you can easily do yourself.
  • Make sure you don’t have a prepayment penalty on your mortgage. Chances are you will find refinancing options that save you money, but it may all be for nothing if you haven’t been paying attention to your current mortgage contract. A prepayment penalty can make refinancing turn from a money saver to something that will end up costing you more than your original mortgage.

Whether refinancing is a good idea or not is up to you, as it largely depends on many factors. Refinancing can be a good choice for some, helping them save some money on their mortgage. Between the closing costs and all of the requirements, refinancing can turn out to be a bad choice for others, which can result in wasted time and money. At the end of the day, it is up to you to evaluate your situation and budget, and decide if mortgage refinancing is your best choice.

A Clever Guide to Combining Mortgages for Two Properties

A Clever Guide to Combining Mortgages for Two Properties-150x150Combining the mortgages for two properties into one mortgage is a way of simplifying your monthly bills and can be an advantageous choice, but it is not for everybody. This step makes a lot of sense when you have enough equity in one of your properties to cover for the other mortgage loan. Before choosing this option, make sure you understand the process and what it is involved. If you want to combine two mortgages into one, the easiest way in which you can do this is by applying for a home refinance loan.

Refinancing

When combining two mortgages into one through refinancing, you basically use the new loan to pay off your current loans, and this consolidates them into a single loan. Refinancing will start a new mortgage term, usually with a new rate.

Refinancing is highly dependent on how much equity you have in your home. While paying your mortgage loan, you build equity in your home, and it will be the deciding factor when the lender evaluates your situation in order to give you a new loan.

A refinance can lower your interest rate and monthly payment, but whether this will happen or not depends on factors such as your current interest rates, your credit score, and your income. However, refinancing can be very costly because it will require you to pay several fees included in the closing cost.

Steps to Combine Mortgages for Two Properties

If you wish to combine the mortgages on two properties, what you essentially need is to have enough equity in one property that can support the combined value of the two mortgages. Your new loan will be a cash-out refinance loan and will most likely have stricter qualification requirements and a higher interest rate. Here are the steps to combining the mortgages for two different properties into one mortgage:

  1. Analyze both of your properties and find out which one has the most equity. Lenders allow a bigger loan-to-value percentage for residences than they do for properties that are considered investments. If your loan-to-value is over 80 percent, you will need to also pay a mortgage insurance, which will drive the cost of the loan much higher.
  2. Get quotes from several lenders. Carefully compare all of these quotes and analyze all the aspects of each loan to find the one that works best for you. You should also talk to your current or past lenders, as they might be able to offer you better deals because you have already established a relationship with them.
  3. Make sure you lender knows that you will be paying off mortgage loans from two different properties. The loan officer will work with the title company to acquire the payoff statement which shows the mortgage balance, the unpaid interest and what fees are required in order to release the lien on the property.
  4. When the loan is paid off, make sure that the lien is released. The filing and the recording of the release could take a few weeks, but if you keep a copy there shouldn’t be any issues.

Before combining the mortgages for two properties it is very important to carefully analyze what this operation entails and find out if it’s your best option. Talk with your accountant or a professional adviser to find out how combining two mortgages will affect you and if you should go for it or choose another path.

Things to Remember Before Refinancing a Mortgage

Things to Remember Before Refinancing a Mortgage- 150x150The option of refinancing a home mortgage requires serious analysis. It is a financial mechanism that allows a homeowner to pay off their existing or original home loan by renegotiating a new mortgage with better terms, ultimately providing budget-saving benefits. It can potentially allow a homeowner to save significant amounts of money in interest payments over the long-haul, or it can boost the equity time-table as well. The refinancing option can also be less than favorable if it is not approached with a good plan and sound motivations for doing so before signing the bottom line.

Evaluate All Costs

While most lenders would be happy to discuss refinancing, there are costs involved that might not be presented as clearly as they should be in the initial discussions. It is advisable to request a complete list of all costs and fees, especially hidden ‘third party’ or ‘padded’ fees for services. In addition, there may be prepayment penalties on the original mortgage that can be quite steep, but must be factored in. These costs could negate the refinancing benefits.

Switching Loan Types

The primary motivation for refinancing is usually the interest rates applied to the original loan. If the original loan was an adjustable rate loan type (ARM), the best advice is to switch to a fixed rate mortgage to stabilize the monthly payment. At the very least, the previous ARM interest rate was set higher than the current mortgage rates, so renegotiating for a lower rate with either loan type is usually advantageous.

Seek Multiple Loan Offers

The best advice is to shop around for the best available offers, either from local lending sources or those found online. Refinancing can be expensive if it is not researched adequately. However, there are often many fees in the lending and closing process that can be negotiable and the competition for business in the current market is in the borrower’s favor. While the lenders are out to make a profit, the goal in mortgage refinancing is to make owning a home more cost-effective for the homeowner.

Refinancing Loan Types and Closing Costs

Refinancing Loan Types and Closing Costs- 150x150With the economy having a favorable effect on interest rates, many homeowners are considering the viability of refinancing existing mortgages to take full advantage of this downward trend. Depending on which type of mortgage program the original loan was (fixed-rate loan, adjustable-rate, interest-only, or hybrid ARM), refinancing is proving to be a favorable option. Careful consideration needs to be applied to the feasibility of refinancing because each has an array of advantages and disadvantages. Whether the focus is on extending the loan term, cutting down on monthly payment amounts, or accessing the equity, there are both short-term and long-term benefits and consequences to be evaluated.

 

Lengthening the Term and Lowering Payments

Lowering the interest rate can be the primary focus, but it is not the only factor. It is important the borrower understands the complete package and ramifications of refinancing. This includes understanding that to extend a loan term means more overall interest is paid out in the long run and that the loan type chosen can decrease or increase monthly payments. There are other ‘hidden’ costs involved with refinancing as well, such as a reevaluation of tax liability, along with the property insurance coverage, and whether or not the new loan will require private mortgage insurance. Make use of online mortgage calculators to establish which refinancing scenario works best for your budget.

Factoring in Closing Costs

Another consideration are the refinancing closing costs. If a borrower is fortunate enough to refinance their old loan with the original lender by simply renegotiating loan terms, then the majority of closing costs may not be a factor. If that will not be the case, then the closing costs will become a major part of the equation. Typical closing costs can run from 3% to 5% of the loan value, which can be anywhere from $3,000 to $11,000 on a $200,000 loan, depending on how many points the lender chooses to apply to the loan package.

Practical Advice on Refinancing Your Mortgage

Practical Advice for Mortgage Refinancing- 150x150Any approach to refinancing mortgages needs to be timely, sensible, rational, and most importantly, affordable. While refinancing can certainly create great savings benefits in the long run, it must still balance itself out against time, effort, and costs involved. This is especially true when the bottom line is weighed against the long-term financial goals and the short-term practicalities for maintaining a sound household budget.

Interest Rate Factors

There is no factor more important when making a refinancing decision than interest rates. The refinancing interest rate determines the economic feasibility of the entire process, especially over the length of the loan term. If the current mortgage rates are at least two percentage points below the existing mortgage rate, then refinancing may be well worth the trouble and short-term expense, and could save the homeowner thousands of dollars over the term of the mortgage.

Calculate Monthly Savings

Having a lower interest rate is the most important factor in making a refinancing decision because of its significant lowering effect on your monthly mortgage payments. By reducing monthly mortgage payments by just $200, refinancing can save a homeowner over $24,000 in the first decade of the new loan, adding considerable flexibility to budgets for other debt obligations.

Evaluate Up-Front Costs

Since the refinance option is in reality a completely new loan, there will be initial costs involved that are almost identical to the original loan process, from the loan origination fees all the way to the closing costs. In some cases, to minimize up-front expenses, the closing costs can be added into the loan itself, although interest rates will now be added to the closing costs. In other scenarios, if the lender for the original loan is willing to discuss the refinancing effort, there might be reduced or eliminated expenses during the new loan’s closing process. If a borrower’s financial condition is in good standing, and their credit rating remains high, there may be additional terms or conditions the lender may adjust more favorably, such as even lower rates and points, or be willing to negotiate closing fees.