Refinancing Expenses – Know What Your Getting Into

Home-buyers and homeowners alike are certainly aware of the affect the economy has had on home pricing and the housing market in general. While a great cross section of the global financial markets are re-tooling to adjust to the ‘newer normal’, for the time being, the positive side of the equation is the remarkably lower interest rates. This translates into many homeowners re-evaluating their options regarding refinancing their existing mortgages for quite a few reasons. Whether the causes stem from a slow job market recovery, wage cut-backs, corporate down-sizing, or just trying to stretch a dollar a bit further, mortgage refinancing can be a great help in improving anyone’s cash flow problems. If the tactic is based on reducing the term of the mortgage, shaving off some of the monthly payment debt-load, or getting access to a portion of the equity, refinancing that mortgage is a great way to do it. There are, however, a few costs involved with the process, and they have to be factored into the plan before signing on the new bottom line.

Check for Pre-payment Penalties

There are many variables to contemplate in the mortgage refinancing option. The primary consideration is the overall cost, which can run anywhere from 2% to 3% of the entire loan amount. Within this scenario, there may or not be pre-payment penalties on the original loan to be dealt with. Often these fees can be upwards of at least six months of interest should the mortgage be terminated within a specific time-frame, generally in the initial three to five years. Including pre-payment fee clauses in the new mortgage can sometimes result in lower interest rates, and void certain non-recurring expenses at closing. When evaluating the pluses and minuses of the refinancing equation, these are important numbers to be aware of.

New Loan – New Appraisal

Utilizing any one of the on-line mortgage or refinancing calculators is a very smart strategy, and can aid significantly when the time comes to crunch the numbers, and to evaluate the offers from different lenders. Factoring in the up-dated interest rate along with the new-and-improved monthly payment targets are just the beginning. There are the multitude of other expenses all wrapped up the closing costs that must be scrutinized and negotiated as well. One of these will be the new appraisal on the home, since most are only valid for three months. To hedge their bets in case the new mortgage will not be approved, lenders will generally request that the borrower cover this expense up front, which can run as much as $250 or more.

Equivalent Closing Costs

On top of this, there will be the costs associated with credit verification, origination, and loan processing, along with the third-party charges such as title search and insurance, document preparation, recording, attorney fees, and so on. The entire spectrum of estimated closing costs should be spelled out in the Good-Faith Estimate provided by the lender of choice, some of which are negotiable. Lastly there will be the ‘points’ associated with the loan, which are assessed by the lender as a form of pre-paid interest. On a long-term mortgage, these points lower the overall interest rate paid on the loan by as much as a quarter to a half percent, and represent approximately 1% of the loan amount, which are also paid up-front prior to closing.

In most respects, while refinancing an existing mortgage is a very wise approach to managing the budget more effectively, or gaining access to cash through tapping into the home’s equity, it is still much like getting a loan for the first time. Most of the costs involved are assessed in the same manner, and cover just as many procedures required by the lender as in the original loan process. However, as the financing, interest rate, and credit climate changes, so do the benefits. With access to a wide variety of lenders across the internet, and many quite eager to take on new business, shopping around for the most favorable offers for refinancing that old mortgage into new cash opportunities can be a very lucrative venture for many homeowners.

The Mortgage Refinance Decision Making Process

With the characteristic ebb and flow of the current economy so inextricably intertwined with the flat-lined housing market, it stands to reason that many homeowners across the country are critically examining the pros and cons of refinancing their existing mortgages. The basic or fundamental reasoning can be boiled down to three key areas of concern in terms of having any real economic motivation to take on this task. The first is almost a no-brainer because it involves the primary feasibility of making a budget work – the homeowner is in need of saving money by lowering their existing mortgage rates. The second impetus is also a more budget friendly incentive for refinancing – to allow more manageability in the mortgage repayments by extending the term of the of the existing loan. The third criterion is based on a premise of choosing a different loan type, and for obvious reasons – considering a change from an adjustable mortgage rate to a fixed mortgage rate in order to stabilize the monthly repayment obligation. Again, these are all decisions that arise from the pressure a poor economic situation applies to every household budget.

These three factors generally point to the realization that refinancing a mortgage is certainly something to consider. However, a certain percentage of individuals may assume the task to be somewhat daunting, or even financially risky, and they have a pre-determined idea that it may not prove to be beneficial enough to attempt. Basically, the strategy is only as complicated as one makes it, and with a good plan and a bit of organized willpower, it is definitely a do-able course of action. Here are a few ideas to streamline the decision-making process a bit, to boil it all down to the necessary components to correctly evaluate the feasibility of refinancing, and it is far from rocket science.

Important Mortgage Refinancing Considerations

Determine the motivation for refinancing – The final outcome of the mortgage refinancing decision will be affected by any or all of the three budgeting factors: lower interest rates, lower monthly payments, or a fixed monthly payment.

Establish the desired loan factors – Using the previous budgeting motives, decide the feasible interest rate and monthly payment objectives, along with a specified term, using on-line mortgage calculators to work out possible scenarios.

Credit score evaluation – Everything depends upon this critical factor, and is especially relevant if the ratings have not been checked in some time. These scores set the stage for lender offers and the likelihood of a favorable loan approval.

Fluctuations in property values – Another key element is whether the economy has effected the current value of the home enough to decrease the viability of refinancing, unless the existing mortgage has been paid down to a significant degree.

Check the early repayment penalty – Find out if the original lending institution will consider the new refinancing, which may nullify any prepayment fees. If not, absorbing this cost needs to be considered within the feasibility study.

Seek refinancing offers from numerous lenders – The field is quite large, and prospective offers will vary considerably, therefore shop carefully and diligently for the best rates and terms.

Scrutinize every detail of each offer – Establish a checklist for comparative evaluation to determine the total projected cost of each offer. This will include the points, the interest rates, closing costs, inspections, origination fees, and so on

Get the loan offer time-table specified– Based on the length of the application process, lenders will try to hedge on verbal commitments for long periods, so getting a rate-lock in writing for the duration of the refinancing process is critical.

Balance the costs versus the savings – Utilizing mortgage calculators, work out the numbers between the existing mortgage commitment against the total cost of refinancing. The difference between the initial up-front expenditures must be weighed against the longer-term monthly savings benefit.

With the streamlined approach listed above, a more careful, concise, and budget-friendly refinancing decision can be achieved. The more focused and detailed the information is while devising a credible plan of attack, the easier it will be to reach the most beneficial mortgage refinancing solution.

When Should I Refinance My Mortgage

No doubt many homeowners across the country are evaluating the advantages and disadvantages of refinancing their current mortgages. This evaluation is also coupled with having a strong sense that the financial climate is favorable, or at least stable enough to make the process economically worthwhile. This decision is certainly a critical one. Refinancing a home entails a good judgment of timing, and can obviously result in substantial monetary gains and budgetary relief during tough financial periods. This, along with tight credit markets, allows homeowners a good alternative means to acquire much-needed cash and budget flexibility for a multitude of reasons.

On the other hand, choosing the wrong time to refinance can result in even more financial woes, sending an already stressed-out budget into a tail-spin. The recent foreclosure rates are certainly a stark reminder of what can happen when the housing market takes a long-overdue dive from its former heyday in the earlier part of the last decade. Again, it is all about timing.

So, the issue of refinancing a mortgage revolves around the question of “Should I Refinance My Mortgage” . There are several key indicators to evaluate before expending the time and energy to accomplish this task, and whether or not the economic atmosphere in a homeowner’s local market is conducive to pursuing the process further.

Indicator: Qualifying for Lower Interest Rates

If the existing mortgage was processed at a time when the rates were much higher than at present, or more importantly, a borrower’s credit rating was at a lower point than it would be currently. By checking the current status of the credit scores, along with having a much improved credit history overall, will greatly affect the chances of acquiring a much lower interest rate in the refinancing process. In addition, the choice to refinance must be evaluated only when the interest rate factor is significant enough to warrant a major improvement to the monthly payment obligation, which is generally around 2% or more, to have an impact.

Indicator: Switching from an Adjustable Mortgage

If the current economic climate is having a serious affect on maintaining the budget as a result of taking on an adjustable rate mortgage in the past, when it was deemed both favorable and affordable at the time. Back then, the very attractive adjustable rate mortgage allowed borrowers to buy perhaps more home for their money, and reaped the short-term benefit of lower monthly payments. These payment obligations eventually became hard to manage when the flexible rates applied to those mortgages rose well beyond their short-term forecasting, and become financially unfeasible. The refinance plan would be to qualify for a fixed rate mortgage, and at a much lower interest rate, in order to stabilize the monthly repayment to a more budget-friendly amount. Though the refinancing process might entail new closing costs and penalties, the long-term gains may outweigh these initial expenditures.

Indicator: Time for Home Improvements

If gaining access to the equity in the home will allow long-overdue improvements to be made, and therefore greatly increase the overall market value of the property. Using the equity for unnecessary purchases, or those that can be postponed or paid for by other means, like vacations or a new car, is detrimental to the refinancing concept. Using the equity from the home to remodel, put on an addition, upgrade the appliances and so forth, will add more value to the refinancing equation. These equity funds took some time to accumulate, so the best investment is to put it back into the investment itself – the home, in order to better capitalize on the funds gained by the whole refinancing effort.

Mortgage Refinancing – Why You Should Consider It

Most perceptive homeowners know a good idea when they hear about it, especially when it involves getting the most out of their hard-pressed budget. Since the monthly payment obligations on their home take the biggest bite out of the cash flow, they will naturally opt to explore any way at all to cut those costs, and save whatever they can over the long-haul in the process. For a multitude of economic reasons, refinancing that loan is the perfect solution, and it goes well beyond just easing up on the monthly mortgage bill. The refinance option can cover quite a few strategic motivations, and each one can make a huge impact on immediate or long-term cash concerns. Here a few of the most important factors that can influence the decision.

Mortgage Interest Rate Reduction

The amount of cash a homeowner needs to pay out every month toward the house payment can be significantly reduced with a lower interest rate. Just $100 saved each and every month over a decade will allow a homeowner to put over $12,000 back into the budget. If the original loan was approved with a higher interest rate applied compared to today’s rates, the savings could be quite large. For instance, the difference on a $250,000 refinance loan at 5% over 30 years versus 4% would be roughly $148 less paid out each month. This is approximately $53,000 in interest savings over the term of the loan. In addition, a lower interest rate also builds equity far quicker.

Monthly Mortgage Payment Reduction

If a homeowner were to consider refinancing their existing loan to a new 30-year commitment, it would substantially reduce the monthly repayment amounts. There are even lending options that offer a 40-year refinancing schedule. There is a negative to this approach however. By extending the term of the refinanced loan out beyond the current loan term, there will be much more interest paid out over the long-haul as a result. This tactic would therefore be the exchange in benefit for a reduced monthly payment amount. As an example, using a $200,000 loan at 4% interest over a 20-year term versus a 30-year term would result in an additional $53,000 paid out in extra interest, but a $257 reduction in the monthly payment.

Accelerate the Mortgage Loan Payoff

The overall loan debt can be greatly reduced by cutting down on the length of the term of the loan. Generally, the shorter the term of the mortgage, the lower the mortgage interest rates, and since the termination date of the loan is far sooner, there is far less interest to pay. In this scenario, the monthly payments are usually higher. By taking a $200,000 30-year loan at 6% versus a 15-year at 5.5% would yield a $1,199 payment versus a $1,634 payment. However, the 15-year loan would reap a significant savings of over $137,520 due to its loan term being only half as long.

Alternate Mortgage Loan Types – Fixed versus ARM

If the homeowner wishes to stabilize the monthly payments, and currently has a mortgage with an adjustable rate (ARM), or one with an interest-only schedule for a certain length of time, then the fixed-rate mortgage option would be the best choice. This is very beneficial when the current rates are at their lowest. Conversely, with interest rates being as low as they are, simply opting for a new ARM might yield better rates and lower payment limits.

Cashing Out Your Mortgage Equity

Refinancing to gain access to the equity in the home can be very beneficial for a variety of reasons, such as home improvements, debt consolidation purposes, pay tuition expenses for a family member, or perhaps to start a small business or other investment opportunities. If the homeowner qualifies for refinancing, and the approval amount exceeds the value of the home, the borrower can pocket the difference. Most lenders will consider refinancing approval when there is a minimum of 20% equity in the home value.

So if the refinancing plan is to gain access to the equity, lower the monthly payments, pay off the mortgage sooner, or pay off some of the higher credit card obligations, use the on-line calculators and other internet resources to find the most affordable offers that meet the desired goals, and makes that budget much more manageable.

What are the basics of mortgage rate refinancing?
After a set period of time, your mortgage may be able to be refinanced. If you are under a variable rate mortgage, then your mortgage could be refinanced after one, two, or five years. This is most effective when used to take advantage of a new, lower interest rate. However, as mentioned below, there is some risk involved which could wipe out, or even reverse, any gains that you make.

That being said, refinancing can save you thousands of dollars on unnecessary interest payments in the long term. As a good rule of thumb, consider refinancing only if the interest rate is more than two points lower than your current rate. If it isn’t, then refinancing your mortgage rate may not be in your best interest, as the length of time that you need to spend in your house before you ‘profit’ from your mortgage rate refinancing could be far longer than the amount of time you actually plan on spending in your house.

Put simply, in order to refinance mortgage rates, you need to be aware of the risks and benefits involved, as well as the amount of money you can afford to spend on a monthly payment, and the approximate length of time that you plan on spending in your house. If you know this information, then you could be able to save yourself a bundle of money by refinancing your mortgage as soon as possible.

What are some of the risks associated with refinancing mortgage rates?
Just like anything in the financial world, there is a certain amount of risk involved in refinancing your mortgage. However, most of these risks can be avoided by simply staying informed on the terms of your loan. For example, many lenders have penalty clauses that will come into effect if you pay off your loan early, or even if you only pay off part of it. There are also thousands of dollars of taxes, brokerage fees, and many other payments that swiftly add up during the refinancing period.  In addition, there may be closing fees, which, when combined with other penalty clauses, have the potential to wipe out any savings you got by refinancing your mortgage rate in the first place.

Another important risk that many borrowers do not realize is that, by lowering your monthly payment on the loan, you are likely increasing the total cost of the loan over your lifetime. The only way to change the principal amount is by paying off the loan, and interest is constantly accumulating. For that reason, a lower monthly payment does not always translate into a more cost-effective mortgage rate. The only time this would be the case was if you refinanced to receive a lower interest rate, or shortened the repayment time of the loan.

However, as mentioned above, the fees triggered by an early repayment could wipe out gains even from this kind of mortgage rate refinancing. For that reason, borrowers need to do their research in order to refinance mortgage rates in the manner which benefits them the most. If you put in your research time, and have educated yourself as much as possible, then you stand a good chance to gain from refinancing your mortgage rates.

How do current mortgage rates affect my loan?
Basically, current mortgage rates show what the price of lending is from a certain bank or institution. Using this information, people who are looking for a mortgage can easily determine which bank to get a loan from. The rate is the annual rate of interest that is charged to your principal amount.

Who decides what the mortgage rates will be?
Each individual institution decides what the mortgage rate will be. Since capitalism is naturally competitive, having a number of different lenders in the market drives down mortgage rates, as each bank must compete with one another for the business of the consumers. Ultimately, this means that borrowers pay less for their loans.

Keep in mind that today’s mortgage rates in the United States are determined by the price of Mortgage Backed Securities (MBS). Just like any other market commodity, MBS are traded based on supply and demand. So, unlike many people believe, the cost of borrowing in the United States has little to do with the price of 10-year treasury notes, or the Federal Reserve. It is important to be aware that the price of MBS changes every day.

The importance of mortgage terms
Depending on the mortgage term, borrowers can pay a higher or lower rate of interest. For example, a mortgage based over a 5 year period could have a rate of 3.5%, while a mortgage with a 1 year term could have a rate of 2.5%. Choose the rate according to which options fit your lifestyle the best.

For example, if you think that mortgage rates will drop in the near future, then it could be a good time to take advantage of a short term mortgage rate with a lower rate of interest. Or, if you think that the mortgage rates will be going up in the future, then lock into a 5 year mortgage term now to potentially save yourself thousands of dollars down the road.

How can I find the best current mortgage rates?
After reading all of the information listed above, you should now realize the importance of finding a good mortgage rate. So how do you go about doing that? Well, there is plenty of information available online, and most banks publish their current mortgage rates. In fact, some independent websites will helpfully list all of the top lenders, along with their current mortgage rates. This makes it much easier to compare rates and, ultimately, makes it easier to choose the mortgage that is right for you.

In addition, you may want to enlist the services of a mortgage broker, who will automatically do this for you. A mortgage broker costs the borrower nothing. Instead, the broker gets paid from the bank after referring a borrower to them. Their job is to find the best rates for you, and for that reason, mortgage brokers are a useful tool for any prospective homeowner to use.

First of all, trust the expert opinion of those economists and market analysts that you read about in newspapers, or see on TV and on the internet. Put simply, these analysts have devoted their entire lives towards figuring out how the market works. Do you really think that you will be able to spot and predict something that they’ve missed? When you’re competing against experts with the newest, fastest technology and a number of different models, most people don’t stand a chance.

Of course, if you genuinely think you have a system that can beat the predictions of major market analysts, then take advantage of it. If it doesn’t work, then you have nobody but yourself to blame. However, keep in mind that, when you’re handling thousands of dollars of your household’s finances, it might not be the best time to take a risky gamble.

The importance of timing

For the rest of us, trusting the opinion of these expert analysts is one of the key things to do when looking for the best mortgage rates. This will (hopefully) allow you to time the market, which means that you can avoid paying thousands of dollars of unnecessary interest in the future.

For example, if the best mortgage rate today is 4%, then you may consider locking in at that rate for a specific term, like five years. However, if that rate drops even further down to 3% after a year, then you could end up paying far too much for your mortgage then you could have if you were on a variable plan, or if you had locked in for a shorter term.

Of course, as ideal as timing like this may be, it is very difficult to pull off properly. For that reason, many people simply turn to a variable rate mortgage as their best option. And, with an economic recovery still underway, mortgage rates are likely going to remain low for the next few years, which means that these people could be making an effective financial option.

Which one offers the best mortgage rates: fixed-rate or variable?

Like anything in the financial market, it’s tough to know what is going to change, and when it’s going to happen. There is a high level of risk involved with any transaction, particularly when you’re dealing with a large loan like a mortgage. To more effectively shield themselves from any risk, many people choose to lock in for a longer term at a fixed rate.

When choosing that option, borrowers know exactly how much they will be paying on their mortgage over the next five years of home ownership.  If you’re the kind of person who would rather just know the best mortgage rate now, and not have to worry about checking the updated mortgage rate every week, then locking it in for a long period of time is undoubtedly the best option.

However, if you’re the kind of person who likes to take risks and capitalize on them, then choosing a variable rate mortgage could help you save thousands of dollars down the road. Ultimately, this decision comes down to your personal preferences, your opinion of the market, and the amount of risk you are willing to take on.

The mortgage loan in itself is somewhat different than a typical bank loan and they can be written for periods of twenty or thirty years. Mortgage financing, like other loans, requires the homeowner to fully repay the principal amount plus any applicable interest.  The interest rate may be the same during the contract’s duration; in the alternative, there may be variable rate of interest, which allows the home owner to take advantage of lower property interest rates during the life of the mortgage.

Refinancing

It is also possible to obtain mortgage financing when there already is a mortgage with the property.  Mortgage holders who have built up significant equity can consider refinancing their homes, should they need money.  Mortgage refinancing is essentially trading in the first mortgage for a new mortgage.  Monthly payments can shrink by refinancing the mortgage over a longer period.  Homeowners who are interested in refinancing must apply for a new mortgage.  The home will have to undergo an appraisal to establish its worth and the homeowner’s credit line will be examined.  The lender will then order a title report on the property to search for any liens.

If the lender approves a new mortgage, the homeowner will meet with the lender or title company to sign the new mortgage.  The only mortgage on the home after the finance will be the first loan, and so the new loan will in effect pay off the first mortgage in addition to other liens and mortgages on the property.  Homeowners may find it beneficial to refinance their homes when interest rates decrease to a rate lower than when they first purchased the home.  In determining the benefits of refinancing a home, the homeowner must calculate the long term savings with the refinancing and the length of time he would have to remain in the home to make the refinance worthwhile.

Types of mortgage instruments

The first instrument is the mortgage itself.  In most states, the mortgage creates a lien on a mortgaged property.  Should there be a foreclosure on the lien, a judicial proceeding will declare the debt to be due, in default, and the property must be sold to pay the debt.

The second instrument is the deed of trust, which is a deed by the homeowner to a trustee to secure debt.  In most states, the deed of trust only creates a lien on the title but not a title transfer.  Additionally, deeds of trust can be foreclosed by non-judicial sales held by trustees, as opposed to mortgages, though some can be foreclosed through a judicial proceeding as well.

One answer to all these problems is something called debt consolidation. This is where you combine all of your debts into one big one and end up with paying only one repayment. When it comes to mortgages, it is a very similar process. If you already have a mortgage as well as a number of other debts and are thinking about refinancing, then it is a good opportunity to bundle them all up. You will only have to pay one debt once a month and may end up with better terms than your existing loan.

Another piece to the refinancing puzzle is a very important thing – interest rates. Interest rates are usually not so bad when the economy is not doing so well. This is because more people are likely to borrow when interest rates are lower and is exactly what the economists want – to make people spend money so that this in turn stimulates the economy.

You may have a mortgage at 5% for example but a credit card with an interest rate of 17% and a personal loan with a rate of 9%. If you put them all together and refinance it as a mortgage then you will be paying 5% on the lot. Sometimes you have gotten yourself into a mortgage where the interest rate is higher than the market rate and you want to get it lower. This is another reason to refinance.

If there are other mortgage providers that have a much lower interest rate than the one you have currently, then it is time to consider refinancing. Mortgage refinance interest rates play a big part in refinancing but you must also be aware of penalty rates and exit fees. If you leave to early within your loan period, your existing provider may charge you a large fee and it may be better to stay with them after all. This is because the amount you would save with the new interest rate is not as high as the fee you have to pay to get out of your existing loan.

There are many things to consider before you take the plunge to refinance. Make sure you do a lot of homework first.