Boost your Home's Equity with a Mortgage Refinance

Refinancing to a shorter term of payments or a lower rate of interest can be a great way to give the equity in your home a boost. Your money will work harder where it really makes a difference. Instead of simply paying a lender for the convenience of borrowing, you'll actually pay yourself in the form of real estate equity.

Surefire ways to generate "refinance equity"

The following three ideas can help you generate equity in your home:

1. If you have an interest-only mortgage, your payments do nothing to chip away at your mortgage principal. By picking a mortgage refinance that allows you to pay off principal, you'll automatically begin to build mortgage equity over time. Many experts recommend a mortgage refinance for interest-only borrowers as a method of getting out of debt and into equity.
2. Even if you have a traditional fixed rate 30-year mortgage, you can refinance to a shorter term to pay less interest and accumulate more equity. For example, if you have a fixed-rate 30-year loan, you can shorten the life of the loan to 10 or 20 years. By paying interest based on 10 years of borrowing instead of 30, you'll save two decades' worth of interest payments. And you contribute sooner-and more substantially-to paying off the principal.
3. If you're currently paying off an older mortgage that carries a higher rate of interest, you can refinance to a lower rate and wind up saving many thousands of dollars during the life of the loan. This is one of the more straightforward ways to make a mortgage refinance work for you to generate equity.

You can always create equity by directly paying off a chunk of the principal on your loan; but for most of us, that isn't a practical solution. A much easier and pragmatic approach may be to look at your various refinance options. A good mortgage refinance will still fit your budget, but allow you to contribute more of your monthly payment to paying off principal, and less to merely servicing your outstanding debt.


http://www.mortgageloan.com/boost-your-homes-equity-with-mortgage-refinance

Avoid Common Mortgage Mistakes

Ignorance isn't bliss when it comes to mortgages-it's costly. The mortgage world is indeed complex; but it will be more overwhelming if you stumble through the refinance process without a clue. Here are some simple tried and true mortgage fundamentals that can get you get a solid home loan.

Put a home mortgage at the top of your shopping list. This rule applies more to homebuyers than consumers planning a refinance. Before you start shopping for a home, shop for a mortgage. Get pre-qualified for a loan. This will tell you just how much house you can afford, and allow you to avoid being tempted by a home that's out of your price range.

Don't spend too much, and don't spend too little. Life is a balancing act, and refinancing a mortgage is no different. It would be foolish to spend too much of your monthly income on a bloated house payment. Conversely, you're probably borrowing too little if you pour all your money into a down payment. Keep some money liquid for future expenses. Otherwise, you may wind up pulling that equity back out in the form of a home equity loan if you ever become strapped for cash.

Ask plenty of questions from a trusted lender. This is a two-part tip. First, ask friends and family for referrals on trustworthy lenders. Second, when you've got your list narrowed to a few reputable ones, take the time to understand every facet of the loan proposal. Be careful to avoid any interest-only mortgages or adjustable-rate mortgages (ARMs) unless you truly understand how they work. Check all the costs, and make sure that you're clear on exactly what you're spending.

These simple tips are just the tip of the iceberg when it comes to a mortgage refinance. Even if you don't become an expert, a little knowledge can go a long way toward helping you find the right mortgage.

http://www.mortgageloan.com/avoid-common-mortgage-mistakes

Mortgage Refinance - Tax Deductions and Points

By paying a little more in upfront closing costs, you may save significant amounts of money on long-term interest. As an added bonus, the IRS lets you claim the points as a deduction. However, homeowners should know that points paid on purchases and points paid on a mortgage refinancing are treated differently

Homeowners hesitant to spend money on long-term interest often pay points on their mortgages. (A point is an interest charge paid upfront when you close your loan. It equals 1 percent of the total loan amount.) But such hesitancy is not always necessary, because when points are paid, it usually results in lowering your mortgage interest rate.

The IRS has blessed homeowners by letting them deduct points on their taxes. However, there's a subtle difference between the amount deductible on a mortgage refinance versus the amount you can claim on a traditional home mortgage.

Refinancing taxes made easy

When you purchase your home, you'll jump for joy knowing that the points you'll pay are deductible in the tax-year in which you made the buy. For example, if you paid one point on the origination fee of your brand new $350,000 house, you'll have a hefty $3,500 tax deduction to write-off when April 15th comes around.

It's a different ballgame, however, when you refinance your mortgage. In the above case, if the same homeowner refinances his mortgage after two years, the deduction for the amount he paid in points will be amortized over the course of the loan. If he refinances and pays 2 points on a new $300,000 loan, his tax deduction of $6,000 under the refinancing scenario-(2 percent x $300,000)-would be amortized over 30 years (the term of the new loan). The math in this case ($6,000/30) results in a tax deduction of $200 per year for 30 years.

The silver lining

Don't let this IRS stipulation rain on your tax break parade. Uncle Sam won't make you wait 30 years to claim the entire deduction. If you decide to refinance again, or if you sell the house, you can write-off the unclaimed portion of the deduction. In the above example, if the homeowner decides to sell his house after only two years after refinancing his mortgage, he can claim the remaining $5,600, since he had deducted only two years at $200 on his taxes.

Paying points on a home loan can be a great move for people who don't plan on moving. Just be aware that the tax deduction on a mortgage refinance won't be as immediate as a purchase loan. One way or the other, though, you'll get the deduction. As is usually the case with most things monetary, it's just a matter of time.

http://www.mortgageloan.com/mortgage-refinance-tax-deductions-points

The 2 Percent Refinance Rule - Fact or Fiction?

Here's a look at when the 2 percent refinance rule is fact, and when it's fiction.

The long-held belief that you should never refinance unless your rate will drop by 2 percent has been passed down by generations of homeowners. Unfortunately, it amounts to the financial equivalent of an old wives' tale. Between the times when the rule was created and now, there have been millions of dollars foolishly squandered on interest payments by people who may have benefited by a mortgage refinancing.

Sound logic, faulty application

The intent of the 2 percent rule is good. Basically, the original advice was that you shouldn't refinance unless you can recoup your closing costs, including the appraisal costs, title insurance, and the rest of the laundry list of fees that accompany a mortgage refinance. The 2 percent rule assumes that it takes two years to do so.

However, this reasoning doesn't apply to people who plan on staying in a house longer than two years. Remember, the idea behind the rule is that you want to recoup your closing costs. Let's say the differential between current rates and your loan rate is less than 2 percent. It might still make sense to refinance if it takes four years, for example, to recoup your closing costs. The key is that you stay in your home at least four years, if not longer.

Apply the intent, not the law

Ultimately, when you consider a home refinancing, you should factor in the length of time you plan on staying in the house. If it takes 15 years to recoup your closing costs, you may want to hold off on the loan, considering that most people move approximately every five years.

You should also consider whether or not you might need to tap your equity for upcoming expenses. For example, if you're going to send your kids to college in the next three or four years and have little or no savings to pay for it, refinancing right now might not make sense. You may want to wait and see if you'll need to tap into your equity for a higher education. At that point, you could pick another type of loan (an adjustable-rate mortgage with a low teaser rate, for example), to get a palatable interest rate.

If you're considering a mortgage refinance, use the 2 percent rule as a guide, not as a hard and fast rule. Take into consideration the length of time you plan to be in your home. Be realistic and use common sense when determining when, and if, you should refinance.

http://www.mortgageloan.com/2-percent-refinance-rule

Combine Two Mortgages into One Through Refinancing

Many homeowners have taken advantage of the equity in their homes to acquire second mortgages in the form of home equity loans or home equity lines of credit. In some cases, a secondary loan has helped them avoid closing costs, private mortgage insurance, or higher rates charged to jumbo loans. And sometimes, using an equity-based loan allowed them to fund a home improvement project, finance the purchase of a car or swimming pool, pay off credit cards, or help pay year-end taxes in a convenient and easy fashion. But if your loans carry higher than necessary interest rates, it may be a good idea to do a mortgage refinance and simplify your financial life with a single, low-interest rate mortgage.

Refinancing can help!

Although financial advisors may admonish you not to put all your eggs into one basket, when it comes to consolidation of outstanding obligations, most would agree that one basket to encompass all your loose ends is the preferred way to go. With interest rates still hovering near record-setting lows, there's no time like the present for homeowners to take out a single low-interest rate mortgage, in order to dispense with any higher-interest loans you may have on your books.

Save money through a mortgage refinance

The interest you can save by securing an attractively priced fixed-rate mortgage will lower your monthly payments and also cut substantial amounts of interest off the life of your loan. By tallying up the long-term costs of a first and second loan, and then subtracting the cost of a single mortgage obtained through refinancing, you can get a clear picture of your potential savings. In most cases, you can save an astonishing amount of money, which will more than pay for the incidental expenses incurred through refinance charges. Plus, they may be tax deductible.

It's a great idea to simplify your life by combining two mortgages into one. Then, you can save the multi-tasking for your office.

http://www.mortgageloan.com/combine-two-mortgages-refinancing

Refinancing? Know Your New Vantage Score

For lenders and borrowers alike, there are few criteria in the refinancing process as scrutinized as a credit score. FICO is a system that pools credit data from the credit bureaus Experian, TransUnion and Equifax, and produces a numerical grade that indicates your worthiness as a borrower. A FICO score is based on factors that include current debt load, payment history, credit currently in use, length of credit history, and any types of new credit.

The irony is that this method of evaluating your credit worthiness sometimes produces more questions than it answers. While the rule of thumb is that anything in the 720s and above is a good score, a lower number lacks definition and may confuse a lender.

The new VantageScore, which is offered by all three of the credit union agencies, does offer some relief to this quandary. It still uses the same evaluation factors as a FICO score. But along with a lower price tag (one free report per year, and additional viewings at $5.95), it offers some notable differences.

Advantages of the VantageScore

Overall, the VantageScore's evaluating guidelines are the same as FICO scores; too much debt with poor payment history will result in higher scores for consumers. However, the new system provides greater definition of what the numbers mean, which is potentially helpful for borrowers who want to refinance their mortgages, but whose FICO scores are considered too high.

Improved Definitions: Now, instead of a raw score, VantageScore assigns a letter grade. The raw numbers range from 0 to 900, and letter grades are assigned for each hundred-point increment. For example, a score of 800-900 would equal an "A."

The scores also include some real-world applications. A VantageScore report tells you how increased debts could affect your credit evaluation. If you're in the market for a mortgage refinance, you may learn that it's worthwhile to forego that shopping spree at the mall.

Easier for Subprime Borrowers: It can be rough going for borrowers who have little or no credit history and are interested in mortgage refinancing. Generally, these people score low on FICO and are relegated to loans with higher interest rates. The VantageScore claims to provide a more accurate assessment of the credit-worthiness of these individuals-potentially paving the way for better rates.

Keep in mind that both a VantageScore and a FICO score are just one piece in the lender's assessment of you. Many times, there are legitimate explanations to poor credit histories, and lenders may take these into account. If you'd like an invaluable tool for refinancing, and some help finding a good rate, check our your VantageScore. It may give you a big advantage.

http://www.mortgageloan.com/refinancing-vantage-score