Lousy Housing Market? Don't Sell…Refinance!

The prospect of slashing prices to encourage a sale-which is still no guarantee the house won't languish without an offer-is discouraging and frustrating. Lately, many homeowners have felt compelled to do just that, even against their best instincts, in an effort to unload debt or rearrange their finances. But there's usually a better alternative- a mortgage refinance. Here are three examples of how to make a refinance mortgage work for you:

1. Tap your equity. Many consumers are saddled with high-interest rate debt that's getting more expensive by the minute. Ideally, they'd like to sell real estate to pay it off and chase away the wolf that's howling at their doors. But if you have accumulated equity, you can extract it via a mortgage refinance and still hold on to your home, which is probably your most valuable asset. The wolf will walk away with his tail between his legs.

2. Use a refinance to remodel. Don't feel forced into moving now just because you've outgrown your house. Instead, consider refinancing your mortgage and using the proceeds-perhaps from a "cash-out" refinance or other mortgage designed to facilitate home improvements-to remodel or upgrade. While you buy yourself time for the market to turn around, you'll simultaneously add value to your property, which makes it a win-win investment strategy.

3. Refinance to a better rate. Conventional fixed rate 30-year loans are still at historically low interest rates, while adjustable rate mortgages (ARMs) are shattering records by climbing into the stratosphere. Don't sell yourself short-refinance now to capture excellent long-term refinance rates while getting rid of those burdensome loans that are going through the roof.

Many financial experts are touting the use of refinance options as the best solution for these troubled times. According to a National Association of Home Builders forecast, home prices will likely stabilize in 2008 and then continue their recovery. If you don't have to sell now, hold on to your home and wait out the storm. You can refinance without undercutting your investment goals and relieve the pressure to sell, while waiting for the market to change direction.

http://www.mortgageloan.com/lousy-housing-market-dont-sell-refinance

Which Refinance Mortgage Loan is Right for You?

FRMs vs. ARMs

While there are many different mortgages available, all of them fall into one of two rate categories: fixed or adjustable. FRMs hold the same interest rate for the life of the loan. ARMs are tied to an index, and the rate you pay moves up and down with that benchmark. ARMs have many variables, but the most relevant are:

• How long the initial rate is in place

• How often, and by how much, the interest rate can be adjusted

Security vs. savings

On the fixed side, you have the security of knowing that your payment will never change. But with an adjustable rate, you may save thousands of dollars with a low opening rate. Deciding which program makes more sense for you boils down to two things:

• How long you plan to own your home

• How comfortable you are with risk

Most ARMs have an opening interest rate that remains constant for three, five or seven years. If you plan to sell your home in five years, for example, you could take advantage of the low opening rate, and then sell before it changes. Determine how much you can save by using an online calculator to figure out what the FRM and ARM payments would be. (You can find ARM and FRM refinance rates for your state of residence online.)

Even if you're fairly certain that you'll be selling in the next few years, you still have to weigh the risk factor. If you have a very low tolerance for risk, an ARM probably isn't for you. If the FRM ends up costing a little more, so be it. Consider that the price that you pay for the security of a fixed payment.

See, no coin toss necessary! FRMs and ARMs can duke it out-but you probably already know who the winner is.

http://www.mortgageloan.com/which-refinance-mortgage-loan-is-right-for-you

Refinance your Mobile Home Loan

If you own a mobile home and aspire to a greater level of financial wellbeing, a mobile home refinancing loan may be the right vehicle for you. Some mobile homes are financed with mortgages, but most are financed by personal property loans, or chattel loans. Relative to mortgages, personal property loans are usually more expensive and have shorter maturities. Mortgages are typically reserved for mobile homes that are permanently attached to the land. In these cases, both the home and land secure the loan.

Regardless of whether your existing loan is a mortgage or personal property loan, refinancing can be used as a wealth-building strategy. This is because personal property loans and mortgages are both governed by the same general principles:

• All else being equal, refinancing to a lower interest rate lowers your payments and improves your cash flow.

• Paying down your principal creates equity, which is the value of the home over and above the loan balance. If you have equity, you can borrow against it with a refinance home loan.

Personal property loan refinance vs. mortgage refinance

Personal property loans aren't as heavily regulated as mortgages, so lenders have more leeway to adjust rates, terms and fees. Since programs can vary greatly from lender to lender, comparison shopping is a vital step in the process.

Keep in mind that mobile homes do not hold their value as well as fixed homes do. This affects a lender's willingness to refinance the mobile home, as well as your ability to build equity. It may be difficult to refinance an older home, just as it's difficult to build equity in an asset that's declining in value. If you've been thinking about refinancing, start exploring your options now.

http://www.mortgageloan.com/refinance-your-mobile-home-loan

Six Common Refinancing Mistakes

Consumers are eager to refinance to get better interest rates or to borrow money for home improvements or other expenses. In their haste to refinance, however, many homeowners make errors that can erase the potential benefits of refinancing.

Here are six pitfalls to avoid:

1. Paying too much in closing costs

Closing costs can differ significantly from one lender to the next. Compare various lenders for the best deal, and get a written estimate of costs. Then, pick the one with the most attractive offer.

2. Forgetting to lock in your rate

At your request, the lender "locks in" or confirms your interest rate. If rates go up, forgetting to lock could result in a higher rate and cost you more money over the life of the loan. Tell your lender to lock in the rate that you're satisfied with, and get a confirmation in writing to verify that it was done in a timely manner.

3. Not shopping around

There are many different mortgage refinance options, and it pays to shop around for the best rates and terms. Plan ahead to give yourself plenty of time to compare your existing lender to other competitors. Let lenders know that you plan to give your business to the one who offers you the best choices.

4. Refinancing too frequently

Refinancing is a great way to save; but each time you refinance, you incur closing costs and mortgage refinance fees. It takes time to break even on these expenses. If you refinance too often, you'll never reap significant benefits and savings. Calculate how long it will take to begin realizing net savings, and avoid the temptation to refinance your loan prematurely.

5. Ignoring pre-payment penalties

Some loans have a built-in penalty that's activated if you pay off the loan early. By refinancing, you may automatically set off the pre-payment penalty on your current loan and get hit with an unexpected charge. Review your mortgage carefully-if there's a pre-payment clause, take this into account before you pay off the balance by refinancing.

6. Borrowing too much

If you have good credit, lenders will generally offer you more money than you need. But each time you borrow, you wind up paying interest on the loan balance. Decide how much you truly need and can afford to borrow. Then, avoid the urge to increase the size of your refinance loan beyond that amount. By avoiding these common pitfalls you can increase your equity, decrease your expenses, and ensure that your plan to save money is a good one. As a result, your mortgage refinance will pay for itself and generate positive cash flow over time.

http://www.mortgageloan.com/six-common-refinancing-mistakes

Energy Efficient Mortgage (EEM) Refinancing

If your cost of living is being hit hard by rising gasoline prices, you're not alone. Everyone's feeling the squeeze. One way to reduce your spending is to cut the cost of your utility bills. And replacing those drafty windows and leaky ducts might be easier than you think.

Energy Efficient Mortgage (EEM)

An EEM funds the costs of planned energy-efficiency improvements to your home. They can be federally insured through the Federal Housing Authority (FHA) or Veteran's Administration (VA). They may also be made without federal backing, either through conventional channels, or through an Environmental Protection Agency (EPA) program called ENERGY STAR. Each of these channels has slightly different terms and qualification requirements.

Qualified energy upgrades

Common upgrades include ductwork and insulation repairs, and installation of modernized heating and air conditioning systems, energy-efficient windows, and/or energy-efficient water heaters.

All EEM programs require that the financed energy upgrades result in utility cost savings over time. The potential savings must be documented by a Home Energy Rating Systems (HERS) report. A HERS report rates your home's energy efficiency before any upgrades, and then prepares a cost/benefit analysis on potential upgrades. Qualifying upgrades are those whose estimated costs of implementation are less than the resulting savings. Upgrades costing more than the total savings they can provide are not recommended.

Benefits of EEMs

Because EEM lenders allow additional funding for the cost of the energy upgrades, you'll qualify for a larger loan amount. Your lender may recognize that your cost of living will be lower after the planned upgrades, which should also increase your borrowing power. If you qualify for an FHA- or VA-backed EEM, you'll likely have access to better rates and terms. Lastly, the EEM will give you the resources necessary to increase the value of your home and enhance your quality of life.

Taking action

The steps to acquiring an EEM refinance are very similar to applying for a conventional loan. Start by shopping around, letting prospective lenders know that you're considering an EEM. An experienced lender can offer advice as to which program would be most appropriate for your situation. You'll also need to order a HERS report as soon as possible; this will indicate which upgrades qualify for financing.

The sooner you get the ball rolling, the sooner you'll realize the benefits. Who knows…you may actually catch the energy-efficient bug and trade in that gas-guzzler for a hybrid.

http://www.mortgageloan.com/energy-efficient-mortgage-eem-refinancing

Sidestep Costly Option ARMS with a Mortgage Refinance

Option ARMS offer exceptional flexibility by allowing the borrower to choose from a variety of repayment options on a monthly basis. For instance, you could elect to pay the full amount of your loan installment or, if your budget was tight, you could pay considerably less. Typically, consumers with an Option ARM have four basic choices each month:

• Pay on a 15-year payoff schedule, making the largest payment choice.
• Pay on a 30-year payoff schedule, paying slightly less.
• Pay interest only, contributing nothing to principal repayment.
• Pay no principal and only a portion of the interest, which is the smallest payment option.

Pros and cons of Option ARMs

The flexibility of these loans is especially attractive to homeowners who have irregular incomes-educators who don't work during the summer; students who are about to graduate and begin lucrative jobs; or sales people who earn commissions that fluctuate with seasonal trends. Former Federal Reserve Chairman Alan Greenspan and other experts note that some consumers use the loans to buy homes that they otherwise couldn't afford. These people often wind up in serious financial trouble.

In some cases, these loans create negative amortization. When this happens, your principal debt will increase. While Option ARMs offer great flexibility in the beginning, the interest rates that govern them are subject to periodic change or "reset." As rates go up, so does the cost of servicing the loan. If prevailing interest rates rise-as they've done during the past two years-your minimum monthly payment could increase dramatically. In some cases, the payment on an Option ARM could more than double in a matter of weeks or months. Borrower beware: this loan could be ARMed and dangerous.

Mortgage refinancing to the rescue

Option ARMs gained great popularity during the recent housing boom. But now, people who chose them are finding them too costly, and are understandably worried about defaulting. If that's you, there's a viable and inexpensive solution-refinance with a more comfortable and reliable instrument, like a conventional, fixed-rate 30-year mortgage. Homeowners who do a mortgage refinance can gain predictable monthly payments that consistently and automatically chip away at the principal. At the same time, they can enjoy financial security and priceless peace of mind.

Right now, fixed rate mortgage refinance rates remain near historical lows, offering an unusually attractive option. While there are costs associated with refinancing, they're insignificant compared to the cost of losing your home if you remain in a high-risk loan. If your home is financed via an Option ARM, talk to your lender-and to competing lenders-to learn about less dangerous mortgage refinance options. You can have an Option ARM, or an option for sleeping well at night.

http://www.mortgageloan.com/sidestep-costly-option-arms-with-a-mortgage-refinance

Top Four Reasons to Refinance Your Home

David Letterman made the Top 10 list famous with classics like "Top 10 Messages Left on Fidel Castro's Answering Machine," and "Top 10 Things That Almost Rhyme With Peas." It's a good thing Dave never tackled a Top 10 list about mortgage refinancing-it would probably be big on laughs and low on practicality.

But refinancing isn't a laughing matter. If done properly, it can make a significant difference in your life by stabilizing your financial situation. Here's a list of the top four reasons to refinance your mortgage.

1. Change the mortgage term

Two variables usually determine what loan length is right for you: how long you intend to own your home, and what size payment you can afford. Buyers with healthy cash flow may opt for a 15-year mortgage to pay less in total interest. But buyers who intend to sell quickly might select a longer term to avoid tying up too much cash. Even if you carefully plan your mortgage, situations change without notice. If your mortgage no longer matches up with your plans and cash flow, consider restructuring it with a refinance.

2. Opt out of adjustable rate

The introductory rate clock starts ticking as soon as you fund your home purchase with an adjustable-rate mortgage (ARM). While it may have been the right choice then, it may have outlived its practicality once interest rates started to rise. A refinance can provide the opportunity for you to trade in your ARM for a more secure fixed-rate mortgage.

3. Spend less on mortgage payment

Lowering your monthly mortgage payment is the traditional reason for refinancing. Industry wisdom advises that if the prevailing rate is two percentage points lower than your mortgage, it's time to consider refinancing. Competition in the field of mortgage lending is beginning to turn this industry wisdom into a much looser rule of thumb. Homeowners with good credit can get deals on closing costs from some lenders. In such a case, refinancing for a smaller interest break might make sense.

4. Spend less on other debt

The best reason to refinance your home is to spend less on other debt. Unsecured credit card debt that's rolled over month after month can suffocate your monthly cash flow. If you have equity in your home, a refinance can help you convert expensive credit card debt to less expensive mortgage debt. Doing so would streamline your monthly bill payments and lower your interest costs.

Study the above list to see if you'd benefit by refinancing. With more money in your pocket and less financial stress, you can kick back and really enjoy Letterman's Top 10 lists without any financial woes.

http://www.mortgageloan.com/top-four-reasons-to-refinance-your-home

Which is Better: Cash-Out Refinance or a Home Equity Loan?

or many homeowners, home equity is equivalent to having a large savings account. You can build equity in your home in two ways: (1) when it increases in market value, and (2) when you pay down your mortgage. Getting your hands on that accumulated equity is another issue. You can do that either by selling the property-not a great choice if you're living there-or by borrowing against it.

For example, let's say you have a home worth $250,000, and you owe $150,000 on the mortgage. That means you have $100,000 of equity in your home, which is like having $100,000 in savings. One option is to keep your original first mortgage, and take out a second mortgage or home equity loan (the terms are synonymous) for the amount of equity that you'd like to withdraw.

Another strategy is to use a cash-out refinance. In this scenario, you refinance your first mortgage, and take out a new one for more money than you currently owe on your home. You then pay off your first mortgage and pocket the difference. Using the above example, you could refinance $175,000, pay off the loan balance of $150,000, and pocket a cool $25,000.

Understanding the differences

Since the characteristics of the two types of loans differ significantly, it helps to understand the pros and cons of using a cash-out refinance versus a home equity loan.

• The interest rates on home equity loans are usually higher than refinance rates-but you'll generally pay substantial closing costs to refinance. Closing costs for home equity loans are usually insignificant.
• If you need the money in a hurry, a home equity loan can close within a week, whereas a refinance can usually take a month or longer.
• When refinancing, you'll probably pay back the loan in 15 or 30 years. Your monthly payments will be smaller, but you'll pay a lot more interest over time. With a home equity loan, you have more flexibility and can take advantage of a shorter term to reduce the amount of interest you'll pay over the life of the loan.

For most homeowners, a home equity loan is best for short-term loans that you can pay back within two to three years. Why pay 30 years of interest through refinancing in order to buy a $3,000 high-definition TV, for example, when you could use a convenient home equity loan? But for bigger expenditures-like a $50,000 remodeling job in the kitchen-you might enjoy paying the loan back slowly over decades with a cash-out refinance. Another good reason to refinance: If you're stuck in an expensive adjustable-rate mortgage, you can switch to a lower fixed rate while simultaneously doing a cash-out, in order to accomplish two financial objectives at once.

http://www.mortgageloan.com/which-is-better-cashout-refinance-or-a-home-equity-loan

Refinance to Remodel

A study conducted by ABCD Publishing revealed an anticipated surge in home remodeling projects across the U.S. in 2007. Most consumers are using their home improvement loans to pay for more space -especially extra bathrooms and bedrooms-with kitchen upgrades still at the top of the wish list. More than half of the people surveyed said they plan to do home improvements that will create special design features in their homes, and 20 to 25 percent defined that kind of strategy as one that will make their homes more comfortable or help them "create their dream."

Funding your dreams

To fund your domestic dreams, many experts recommend a mortgage refinance to strategically take advantage of the equity in your home. Here are four home refinance approaches that are especially popular for remodeling projects:

1. Cash-out refinance: Borrow more than your current outstanding mortgage. The loan will cover application fees and closing costs, and you can still walk away with extra cash in your pocket.

2. HELOC: With a home equity line of credit (HELOC), you can withdraw money as needed, like you do with a credit card, for purchasing building materials in phases.

3. Cut costs by switching rates: If you have an adjustable-rate mortgage, shift into a conventional fixed-rate loan. You might save enough to help pay for your renovation while adding valuable equity.

4. Change the payment terms: Some loans let you choose how much interest to pay each month. If you refinance mortgage into one of those, you can adjust your household mortgage budget every four weeks to help accommodate remodeling expenses.

More than ever before, homeowners in 2007 will do all or part of the hands-on work themselves, by taking advantage of their neighborhood home improvement stores. Save the real muscle for the remodel, because when it comes to paying for home improvements with sweat equity, you really don't have to sweat the money. The only heavy lifting involved is a basic mortgage application, a search for competitive rates, and a little crunching of numbers.

http://www.mortgageloan.com/refinance-to-remodel