Multiple Mortgage Refinancing

Multiple Mortgage Refinancing- 150x150With the economy showing signs of improvement, there are many homeowners wondering if they may have jumped the gun in terms of refinancing. Whether they opted to do so before the present decline in interest rates began, or are considering the feasibility now before the rates begin climbing again, it boils down to whether it makes sense financially to do so. While there is no limitation on how many times a homeowner may get a refinance loan, there are still some factors to consider that may tip the scales one way or the other. It also depends on finding a lender offering an affordable loan package, as well as meeting a new set of approval standards and mortgage loan credit requirements.

Factoring in Prepayment Fees

One major consideration is the possibility of a prepayment clause written into the original loan agreement. This stipulates that should the original mortgage be paid down before a specific date or time frame, a substantial amount of money must be paid to the lender as a penalty. These fees are generally based on a certain percentage of the original mortgage amount, and are put in place to ensure refinance lenders hold specific profit margins. The technique is designed to discourage a borrower from considering refinance options too often. If the original loan did not carry this penalty, it was more than likely offset by a higher interest rate applied.

Factoring in New Closing Costs

Should the borrower be fortunate enough to renegotiate the original mortgage with the same lender, there may be certain benefits to be had. Otherwise, the same expenditures will still apply to the new refinancing process, just as they were for the original loan. These costs include the origination, appraisal, title search, recording, and attorney fees. These closing costs can run from 3% to 5% of the total loan amount, which can become quite costly in terms of repetitive refinancing. However, if a borrower wants to do mortgage refinancing with no closing costs, it is possible to roll these closing costs into the loan itself, but interest will be added to this amount over the loan duration.

Is Putting Money Down Required in Mortgage Refinancing?

Is Putting Cash Down Required for Refinancing- 150x150When the refinancing issue is brought to the homeowner’s table, especially when current mortgage interest rates make the option a very favorable consideration, there are the usual ‘costs’ to be factored into the feasibility equation. In the case of refinancing, one of the variables being eliminated is the need for putting down payments into the process, as was required for the original home purchase. Bringing money to the lender’s table in a mortgage refinance is an exception to the normal procedure, and not a standard requirement, which makes the entire concept very appealing for a number of reasons. The only time it might be necessary would be if there is a lack of sufficient equity in the home, or if there is a debt pay-off needed to qualify for the financing.

Money Down is an Option

The basic premise in refinancing is to accomplish a few strategic and money-saving goals. The decision is based on what type of loan package was negotiated at the time of purchase, and what the interest rates were set at by the lender at the time. Therefore, the tactic is to either lower the interest rate, change types of mortgage loans, change the length of the loan term, or tap into the equity resource for cash. There is also the choice of folding the closing costs of the new loan right into the loan itself, which makes the ‘money down’ issue even more attractive. This choice, however, means increasing the overall loan amount, as well as paying more interest in the long run.

More Money Down = Lower Interest Rate

Naturally, when a homeowner chooses to apply any amount of funding toward the refinancing process, if only to lower the loan principle, it will of course reduce monthly mortgage payments. If enough money is brought to the table, there is a good chance the lender will lower the interest rate. This is because the lower loan amount is compared to the current value of the home itself. More funds brought to the closing may also eliminate the need for private mortgage insurance.

Is Cash-Out Refinancing a Good Idea?

Is Cash Out Refinancing a Good Idea 150x150For most homeowners, the sluggish economy may not be gaining the necessary momentum quickly enough to make managing a budget any easier. Naturally, they are looking at their home as not just a roof over their heads, but as a source of much needed cash in the form of equity to tap into, to relieve all sorts of financial needs or opportunities that remain beyond reach. Many are looking at the possibility of accessing this cash resource by investigating the option of cash-out refinancing programs.

Utilizing Home Equity

This option allows a borrower to refinance existing mortgages to ‘cash out’ some or most of the equity value in the home. In essence, the principle is to refinance the home for more than its present value and pocketing the surplus cash at closing. While the funds can be used for almost any purpose, the best strategic move would be to use these funds for either home improvements or debt consolidation.

Check into the Most Favorable Loan Programs

Examine this brief example of how a cash-out refinancing program would work. If the present home has a market value of $120,000, and the current balance on the existing mortgage is $70,000, the procedure would allow a homeowner to refinance for $100,000, eliminate the existing loan obligation of $70,000, and retain a surplus of $30,000 in equity. The process is of course dependent on how much is owed on the original loan, what the prevailing market value of the home is, and the specific mortgage loan types a refinance lender is willing to offer. There are many refinancing plans available, with loan amounts ranging from 80% to 125% of the home’s present value.

The advantages to this plan are based on a homeowner owing less than the home is worth, combined with being able to refinance at a much lower interest rate than the existing loan, adding more savings to the budget. In addition, gaining access to home equity funds will allow debt consolidation and tax benefits by paying off obligations with non tax- deductible interest.

Home Refinancing Objectives: The Basics

Home Refinancing Objectives-150x150Home refinancing decisions are generally based on market influences on the housing industry, and what effect they have on current mortgage interest rates in particular. When the overall economy is sluggish, the interest rates on home loans are proportionately lower as well. Any homeowner with a fixed-rate or adjustable rate mortgage drawn up a few years ago will consider the benefits of refinancing while interest rates are in their current downward swing. The motivation to refinance is to take advantage of this trend by re-placing the old mortgage with a more budget-friendly monthly payment and a lower interest rate.

Three Benefits to Refinancing

Refinancing a current mortgage can save considerable money if it is done at the right time and for the right reasons. In a refinancing plan, there are usually three significant benefits that play a major role in the decision, depending on the long-term goals or current economic factors affecting the borrower.

  • Decreasing Monthly Payment AmountLower mortgage interest rates will significantly reduce the amount the homeowner will pay each month, often by hundreds of dollars. However, this formula needs to be weighed against the long-term effects of extending the term of the original loan further out, which means much more interest being paid out over the life of the loan.
  • Decreasing Loan Term – A shorter term will result in far lower overall costs, as well as having the loan paid off that much quicker. While the interest rate applied will be a few percentage points lower, this advantage may be offset by the monthly payments being somewhat higher because of the shorter loan term. However, the less paid toward interest, the more is paid toward the loan principle.
  • Accessing Home Equity – Tapping into home equity provides the borrower with funds to utilize toward any immediate financial need or cash requirement. Many factors will influence the overall benefits of this decision, such as the monthly payment amount, loan term, interest rate, and current mortgage pay-off amount.

If refinancing turns out to be the best option for you and you have decided to move forward with the refinancing process, you have ample benefits to look forward to. Want to learn more about refinancing? Here are some articles we suggest: Should I Refinance My Home, Top 10 Refinancing Tips, and Best Mortgage Refinancing Indicators.

Guidelines to Mortgage Refinancing

refinancing guidelines-150x150Before a homeowner decides to commit to a mortgage refinancing offer, there are certain criteria to address. Generally, there is an economic motivation behind the decision, such as taking advantage of the current downward trend of interest rates, or switching to different types of mortgage loans, or perhaps getting access to the available cash tied up in home equity for financial reasons. Each motivation needs to be examined carefully, with not only short-term benefits evaluated, but long-term strategies kept in mind as well.

Refinancing Timetable – When is the best time?

There are two primary focus points to consider prior to moving forward with the refinancing procedure, even before the application process can take place. The first is checking interest rates offered at local lending institutions or online, bearing in mind that these rates will be offered to borrowers with the best credit ratings. The refinancing ‘rule of thumb’ is that current mortgage interest rates must be two or more percentage points below the rate applied to the existing mortgage, in order to be worth the refinancing effort.

The second issue is determining just how long a borrower plans to stay in the home after the refinancing takes place. This formula can be examined by taking the estimated cost of closing at $4,000, and dividing it by an estimated savings in monthly payments, say $100. In this case, it would take approximately 40 months, or 3.3 years, before breaking even with the initial costs of mortgage refinancing.

Budgetary Effect – What are the potential savings?

If lowering the monthly payment is the primary consideration, then refinancing with a lower interest rate is the obvious choice. If the current monthly mortgage payment on a $200,000 loan at 8% interest over 30 years is $1,468, the same loan at 6% would bring the monthly payment down to $1,199. Over ten years, the savings would be $32,280 added back into the household budget.

Top 10 Mortgage Refinancing Lenders

mortgage-refinance-loan-application-150x150With interest rates at a historical low, this might be the perfect time for you to move forward with refinancing your mortgage. Mortgage interest rates are expected to remain low for at least the first half of 2013, but there’s a slim chance that they will go even lower. Unfortunately, lending requirements have tightened by a lot, so you must be well aware of your current financial situation and if mortgage refinancing is the best choice for you. Interest rates shouldn’t be the only factor to look at when deciding which refinancing lender to go with.

[Compare the latest mortgage rates from dozens of lenders, updated daily.]

What to Look for When Considering a Refinancing Lender

  • Interest rates. Receiving a low interest rate on your refinancing loan means you will save money. Based on the interest rate, mortgage loans can be divided into two categories. Fixed-rate mortgages loans come with an interest rate that will remain unchanged for the duration of the loan, as opposed to adjustable-rate mortgage loans that feature an interest rate that will change over time.
  • Fees. The main reason you’re considering refinancing is to save money, so high fees will be detrimental to your goal, as sometimes you can even end up spending more money overall due to these high fees. Besides low fees, a reputable lender should disclose all the costs and fees before having you sign a contract.
  • Customer service. A good mortgage refinancing lender will give you financial counseling and walk you through the steps of the process for free, making sure you understand what your rights and responsibilities are.
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When thinking about refinancing your mortgage, it’s very important to have a firm grasp on your current situation. Being in control of your finances and understanding the mortgage refinance process will give you the liberty to shop around, compare mortgage refinance lenders and make the best choice for your financial situation. Remember, it never hurts to get quotes from multiple lenders. In fact, this is often the only way to accurately compare offers and get the best mortgage for your needs.

Here are the Top 10 Mortgage Refinancing Lenders

  1. Quicken Loans. With over 27 years of experience and over $70 billion invested in consumer loans last year, Quicken Loans is the largest online lender in United States.  J.D. Power and Associates also ranked Quicken Loans “Highest in Customer Satisfaction for Primary Mortgage Origination” for 3 consecutive years.
  2. Bank of America. This multinational financial services firm was founded in 1998, and today is one of the biggest companies in the world, and the 5th largest bank in the U.S.  Bank of America accommodates over 57 million clients, and it provides services such as consumer banking, mortgage loans, wealth management etc.
  3. Chase Mortgage. With a BBB (Better Business Bureau) A+ rating, Chase successfully provides its clients with an array of financial services. It is currently the biggest bank in the U.S., with assets of approximately $2 trillion. Chase was founded in 2000, as a result of the merger between J.P. Morgan & Co. and Chase Manhattan, and last year had 258,965 employees.
  4. Wells Fargo Home Mortgage. Along with J.P. Morgan Chase, Citigroup and Bank of America, Wells Fargo is one of the Big Four banks in the U.S. Part of Wells Fargo’s Community Banking segment, Wells Fargo Home Mortgage is the biggest lender of retail mortgage in the U.S., financing $1.8 trillion mortgages.
  5. U.S. Bank. A subsidiary of U.S. Bancorp, U.S. Bank is the 5th biggest bank based on deposit, with $243.8 Billion deposited, and provides consumers with multiple financial services, and lots of information and features about mortgages and refinancing.
  6. Citibank. Founded in 1812, Citibank, a subsidiary of Citigroup, is one of the largest international banks, operating in more than 160 countries. With 1,400 offices, of which more than half are located in the U.S., Citibank offers its clients several financial services, from personal banking, to lending, to wealth management.
  7. BD Nationwide Mortgage. The company offers a large variety of services, such as home loans, mortgage and refinancing, equity loans and more to clients, even those with poor credit. BD Nationwide Mortgage is known for having low mortgage rates.
  8. Sun Trust Banks, Inc. The company and its subsidiaries offer customers several financial services like mutual funds, mortgage lending, banking etc. Sun Trust has over 1,600 branches in southern U.S., and had assets which totaled $173.4 billion last year.
  9. PHH Mortgage. PHH services over 1,000,000 loans, and is one of the country’s mortgage solution leaders. The corporation was founded in 1946, and currently has over 5,000 employees.
  10. Flagstar Bank Corp. Based in Michigan, Flagstar Bank was founded in 1987, and it is currently one of the nation’s top mortgage lenders. The bank ranked “Highest in Customer Satisfaction with Retail Banking for the North Central Region” in J.D. Power and Associated Retail Banking Satisfaction Study two years in a row (2010 and 2011).

Refinancing your mortgage will save you money in the long run, but only if you do your homework and find the most suitable mortgage refinancing lender for you. As you can see, there are plenty of choices when it comes to mortgage refinancing lenders, so feel free to shop around until you decide which of these companies you will choose for your refinancing needs. Mortgage rates are still low. Refinance & Lower Your Payment!

The Best 5 Year Fixed Mortgage Rates

The Best 5 Year Fixed Mortgage RatesA 5-year mortgage, also known as a 5/1 ARM, is a hybrid mortgage with a fixed interest rate for the first 5 years of the loan, and an adjustable interest rate for the rest of the repayment term. This type of mortgage combines an adjustable rate mortgage (ARM) with a fixed mortgage. The benefit of this type of a loan is that it offers a fixed low interest rate for the first 5 years. The risk is that, after the initial 5 years, the interest rate will be adjusted every year, and will most likely increase, making your monthly payments rise. The increase or decrease in interest rates is determined by an index based on the returns of investments, such as US Treasury securities, and changes in international interest rates.

A hybrid mortgage, such as the 5/1 ARM, features lower interest rates than fixed mortgages, but higher interest rates than a standard adjustable rate mortgage. It gives you the safety of knowing what your interest rate will be for the first 5 years, but the downside is that you won’t know if your payment will go up or down each year for the remainder of the loan.

The Advantage and Disadvantage of a 5 Year Mortgage

After the first 5 years, the owner can keep the 5/1 ARM mortgage and keep making payments with an adjustable interest rate, or refinance into a new mortgage. 5/1 ARM mortgages are ideal if you decide to refinance before the end of the initial 5 years of your mortgage.

The disadvantage to a 5/1 ARM mortgage is that, after the initial 5 years have passed, you could see your payments go up by a lot, depending on what the mortgage interest rates will be then, or you can’t qualify for a refinance anymore.

Rate Caps

Rate CapsThe most important thing when looking at a 5-year fixed loan is to make sure that it has low caps on every interest rate change and the duration of the loan. To be certain that you will save the most money, make sure that the 5-year loan has low interest rate caps between every rate change and overall interest rate cap. Using an online mortgage calculator can help you find out how big your payments will be, given your interest rate caps for each 6 month period.

You must weigh your options carefully before deciding to go with any mortgage, but you should be extra careful if you decide to go with a 5/1 ARM. While it can feel like the right choice due to the advantages that it has for the first 5 years, it can quickly become a burden if you haven’t taken everything into consideration before jumping.

Take Advantage of Current FHA Mortgage Rates

FHAThrough FHA loans, the Federal Housing Administration (FHA) allows people with a lower income to take out a loan for the purchase of a home. FHA loans are not actual loans, but a type of insurance. If you get approved for an FHA loan, the Federal Housing Administration will insure this loan against default. Being designed for people with low to moderate income, FHA loans allow someone to borrow up to 96.5 percent of the cost of the home.

As opposed to conventional mortgage rates, FHA rates are endorsed by a mortgage bond issuer group called Ginnie Mae, the only group of its kind that is fully backed by the US government. This makes Ginnie Mae bonds risk free, and the Federal Housing Administration mortgage rates reflect this.

Advantages of an FHA Loan

With lower mortgages rates than conventional mortgage programs, Federal Housing Administration loans are an attractive alternative. Here are some advantages to taking out an FHA loan:

  • Easy to qualify with a less than perfect credit score. Conventional loans made through Freddie Mac and Fannie Mae punish applicants with a credit score lower than 740, but you can still qualify for an FHA loan if you have a low credit score.
  • Smaller down payment. Being as low as 3.5 percent, down payments for FHA loans are generally lower than down payments for conventional loans, which can be as high as 20 percent.
  • The down payment and closing can be paid with borrowed money or gifts.
  • No prepayment penalty. While many conventional loans require you to pay a prepayment penalty, with FHA loans you’re able to pay off your mortgage before the full term of the loan.

FHA Mortgage Rates and Insurance Premiums

FHA mortgage rates have decreased a lot lately, but the cost of the mortgage remains mostly unchanged due to high mortgage insurance premiums (MIP). Because FHA provides insurance for loans, it faces the same risks as home insurance company, for example. If the amount of premiums it collects isn’t higher than the amount of claims paid, the FHA could face bankruptcy. The FHA differs from other insurers because it is required to maintain $2 for every $100 insured in its reserves, but, in November 2011, it was discovered that the FHA only held $0.24 for every $100 insured, which made insurance premiums increase 4 times during the last 4 years.

While the FHA used to charge an annual mortgage insurance premium of only 0.50 percent back in 2008, the annual MIP is up to 1.25 percent in some cases, and even 1.50 percent in some high cost areas. This means that, for example, if you have a mortgage rate of 4 percent, your annual mortgage rates will be as high as 5.25 percent, with the current mortgage insurance premiums.

The good news is that the FHA insurance is not permanent. On a 30-year fixed rate FHA mortgage, the insurance has to be paid for at least 5 years before the MIP can be removed, regardless of what your loan balance or loan to value ratio is. On a 15-year fixed-rate FHA mortgage, the MIP is removed as soon as your loan to value ratio is low enough.

mortgage-insuranceAnother good news is that, if your mortgage pre-dates June 1, 2009, you could get a reduced MIP through the FHA Streamline Refinance program. In order to qualify for the FHA Streamline Refinance you must have made at least 6 mortgage payments in the last 12 months, and not have missed any payments in the last 12 months. Through this program, you will only pay a 0.55 percent annual mortgage insurance premium.

Even with fairly high mortgage insurance premiums, FHA loans are still an attractive alternative to conventional loans for people with a lower credit score, and who want to take advantage of the low FHA mortgage rates and various other advantages.

Should I Refinance My Home?

should I refinance- 150x150With interest rates at an all-time low, many homeowners are beginning to wonder whether they should refinance their mortgages. There are many things to consider when thinking about refinancing so be sure to put in the effort to research all of the things you should know before making a final decision. In helping you with your decision, also look at Pros and Cons of Refinancing as well as our Top 10 Refinancing Tips. But first, take a look at these resources we have put together to help get you started.

Crunch Numbers: Refinance Calculators

There are many refinance calculators available online, and you can use any of them to crunch numbers and determine the specifics of your mortgage situation. The calculator will ask you to enter several facts about your existing mortgage: the current amount of your loan (the balance owed), the interest rate you are paying, the term of your mortgage (fifteen years, thirty years, etc.) and the year your mortgage originated. (A side note: If your loan is not a fixed rate mortgage, there will be some guess work involved, since not even a computerized calculator can predict future interest rates.)

Next you will be asked to provide specific numbers for the proposed new loan. The amount of the loan might simply be the amount of the balance you still owe on the original mortgage, or perhaps you would like to add an additional amount, such as balance owed on credit cards, so you can use the refinance to consolidate other debts as well.

Next you will be asked to fill in the interest rate for the new loan. The resources provided with online refinance calculators should include the current interest rates for standard loan types (thirty year fixed rate, etc.), so you can select the appropriate number for the loan for which you intend to apply. Finally, you will be asked to provide the term of the new loan, and the refinance fees, which your bank can estimate for you.

Comparing the Old and the New

Once you have crunched numbers with the refinance calculator, you will have the information in hand to help you make a decision about the potential advantages of refinancing. Some of the relevant statistics will include the prediction of how much time it will take you to “break even” from the costs of the refinance. For example, if it will take four years for you to offset the expense associated with refinancing, the refinance will not be worthwhile if you do not intend to stay in the house for four years. But if you do intend to stay long enough to benefit from the refinance, there are still other factors to consider.

  • Will the refinance fees be rolled into the new loan, or will you have to come up with sufficient funds to pay the fees upfront?
  • Does refinancing lower your monthly payments?

One option to consider, if your income allows, is to keep paying the same monthly amount you have been accustomed to paying, with that extra amount going toward the principal. The loan will be paid off more quickly, and you will save money on the total interest you would otherwise have paid. You can use another online calculator to find out how much money this will save you over the life of the loan. With the help of calculators to break down the numbers, you can easily make a decision about the advantages of refinancing.

Is Refinancing With No Closing Cost Possible?

finance-150x150When it comes to purchasing a house, there are often huge fees that you have to provide upfront. It’s possible that you can be approved for a mortgage loan and not have enough money for closing costs. In some cases, you can ask the seller to take on the responsibility of the closing costs or roll the costs into your mortgage.  But is it possible to avoid closing costs when you refinance a mortgage? In a word, yes. With some research on your part—and a careful look at the fine print—you can refinance your property without any form of closing fees.

Shop Around and Negotiate Terms

To begin with, it’s important that you stay alert to hidden fees that might take the place of formal closing costs. It is actually possible for a “no closing cost” loan to be more expensive overall than a standard refinance, so you should proceed with caution. Inquire about the specific terms before committing to a lender, and make sure that your idea of “no closing costs” corresponds with the terms the lender actually offers. Consider taking some research steps that can save you thousands:

  • Begin by meeting with a housing counselor endorsed by the United States Department of Housing and Urban Development. The counselor can clarify what lenders and programs you should look at, and might even participate in negotiations with a lender.
  • Identify a lender that advertises refinances without closing costs. If your current lender is not on that list, you might still talk with them first. It’s possible that they will waive some of their usual fees rather than lose your business.
  • Download the worksheet for mortgage shopping offered by the Federal Reserve Board. With the questions on this checklist, you can make an informed comparison of the lenders you interview.
  • When you talk to prospective lenders, ask them to clarify what exactly is meant by “no closing costs” in their refinance program. They may be offering a loan structure that doesn’t include any out-of-pocket costs for you, but those costs might be rolled over into the loan itself, or recouped by charging higher interest rates. Ask for a comparative break-down of the refinance costs with the “no closing costs” option, and without it, so you can identify any hidden costs.
  • Get a Good Faith Estimate. The federal Real Estate Settlement Procedures Act needs lenders to produce prospective borrowers with a good faith estimate of the comprehensive costs of a loan. Ask each lender for this estimate so you can compare the different offers.
  • Read the fine print. Before signing your refinance, carefully read all the fine print to ensure that the actual loan matches the terms you have agreed to.

APR at a Glance

Another quick way to assess the comprehensive costs of a refinance is to inquire about the Annual Percentage Rate, or APR. The APR actually combines the costs of insurance, interest, and closing fees, so even if a lender has hidden the closing fees under some other designation, the overall cost will be revealed when you compare the APR of different lenders.

If you avail yourself of some free expert advice and take the time to do some comparison shopping among prospective lenders, read the small print, and ask for the right revealing reports, you can refinance your property without closing costs—either overt or hidden.