A common question among homeowners looking to refinance is, "Can I refinance my mortgage loan with bad credit ... and if so how?"
The short answer is yes, you can certainly refinance your mortgage loan with bad credit. The longer answer is that you must go about things differently than a homeowner with good credit. And you'll need to make sure that refinancing the mortgage makes financial sense, given your bad credit situation.
We will talk about refinancing a mortgage loan with bad credit in a moment. But first, let's talk about the reasons why people refinance in the first place. Everything will make more sense if we start with this.
Why Do Homeowners Refinance?
Mortgage refinance is always a popular topic among homeowners. Many homeowners feel the lure of lower interest rates and seek to refinance their mortgages in order to capitalize on lower rates. If done properly, the refinancing process can lead to significant savings over the life of the new mortgage loan. Another reason people refinance is to get cash out of their home. This is known as a "cash-out refinance."
Mortgage Refinance Benefits - Time for Math!
When deciding whether or not to refinance a mortgage, you have to do a little bit of math. Fortunately, there are a plenty of mortgage refinance calculators online to help with this process. We have one such calculator in our Resources section. Basically, you want to make sure they money you save over the life of the new mortgage (after refinancing) surpasses the amount you'll pay to obtain the new loan (closing costs). If not, there's really no point in refinancing.
You can learn more about this from this article: When Should I Refinance?
Bad Credit Refinancing
Okay, so now we know the basic deciding factors for refinancing. Now let's talk about ways to refinance a mortgage loan with bad credit. The most important thing to keep in mind here is that the interest rate on your new mortgage loan (after refinancing) will not be as low as it would for a homeowner with good credit. So the same basic math applies -- you should calculate your savings post-refinance based on the interest rate you qualify for, and see if those savings surpass the amount you'll pay to refinance the mortgage loan.
That's really all there is to it. Just remember this. When deciding whether or not to refinance your mortgage with bad credit, you need to get all the numbers up front in order to do the math. Find out (A) what your closing costs will be on the mortgage refinance, (B) what interest rate you will qualify for, and (C) how long you'll have to make payments under the new interest rate so that your total savings surpass your closing costs.
Protect Yourself
Some mortgage lenders claim to specialize in bad credit mortgage refinance loans. Most do so legitimately, but a few companies out there use bad credit situations as a way of taking advantage borrowers. In the mortgage industry, these are referred to as predatory lenders. But you can protect yourself from such unethical lenders by continuing your mortgage refinance education, asking the right questions, doing the math up front, and getting everything in writing!
I hope you have enjoyed this brief tutorial on mortgage refinancing with bad credit, and I wish you the best with your financial future.
http://www.mortgage-refinance-advice.com/bad-credit-refinancing.php
Saturday, September 29, 2007
California Home Loan Mortgage Refinancing
Recently, I saw a news story about the skyrocketing number of home foreclosures in the U.S. California was at the top of the list -- not surprisingly. And where there's a spike in foreclosures, there's usually a spike in mortgage refinancing as well. That's why California home loan mortgage refinancing is such a hot topic.
California Mortgage Refinancing - Contributing Factors
We have already stated that the rise in home foreclosures (and the conditions that lead to foreclosures) are partly what drives California home mortgage refinancing rates. But what leads to these foreclosures? What puts so many people in the situation where they have to refinance their home mortgages to stay afloat? In a word -- adjustables. Sure, many factors contribute to the total volume of California home loan mortgage refinancing. But adjustable rate mortgages (ARMs) probably contribute more than any other factor.
Refinancing Adjustable Rate Mortgages
Here's a basic scenario that explains how adjustable rate mortgage can often drive the need to refinance a mortgage -- or worse, can lead to a foreclosure situation. John and Sally Smith move to San Diego, California for Sally's new job. They immediately begin house hunting and pricing out mortgage loans. But as you know, California real estate can be expensive, especially in San Diego.
John and Sally find a home they want to buy, but the mortgage is a little beyond their current budget. But John plans to find a job in San Diego as well, and they both expect pay increases in time. So they choose an adjustable rate mortgage (ARM) in order to get lower interest rates on the mortgage. The ARM has a fixed rate during the first three years, then it adjusts to whatever the prevailing interest rate is at the time of adjustment (after three years).
Everything is fine for the first few years. The mortgage payments are a bit steep for the Smiths, but they can manage. John and Sally are both working, so they're able to make ends meet. But then they reach the end of their fixed-rate period. How time flies! And their mortgage loan is about to adjust to the prevailing interest rates at that time -- and those interest rates are much higher than what the Smiths were used to under their introductory rate!
What do they do? Well, they can try to brave the new financial waters, like some homeowners do. But if they can't make their mortgage payments, they will go into foreclosure. So instead, they try to refinance their mortgage to a lower fixed-rate mortgage spread over 30 years or so. This is the basic definition of mortgage refinance -- you are replacing and old mortgage loan with a new one, ideally to lower your interest rates. Now, the Smiths are another statistic of California home loan mortgage refinancing.
http://www.mortgage-refinance-advice.com/california-mortgage-refinancing.php
California Mortgage Refinancing - Contributing Factors
We have already stated that the rise in home foreclosures (and the conditions that lead to foreclosures) are partly what drives California home mortgage refinancing rates. But what leads to these foreclosures? What puts so many people in the situation where they have to refinance their home mortgages to stay afloat? In a word -- adjustables. Sure, many factors contribute to the total volume of California home loan mortgage refinancing. But adjustable rate mortgages (ARMs) probably contribute more than any other factor.
Refinancing Adjustable Rate Mortgages
Here's a basic scenario that explains how adjustable rate mortgage can often drive the need to refinance a mortgage -- or worse, can lead to a foreclosure situation. John and Sally Smith move to San Diego, California for Sally's new job. They immediately begin house hunting and pricing out mortgage loans. But as you know, California real estate can be expensive, especially in San Diego.
John and Sally find a home they want to buy, but the mortgage is a little beyond their current budget. But John plans to find a job in San Diego as well, and they both expect pay increases in time. So they choose an adjustable rate mortgage (ARM) in order to get lower interest rates on the mortgage. The ARM has a fixed rate during the first three years, then it adjusts to whatever the prevailing interest rate is at the time of adjustment (after three years).
Everything is fine for the first few years. The mortgage payments are a bit steep for the Smiths, but they can manage. John and Sally are both working, so they're able to make ends meet. But then they reach the end of their fixed-rate period. How time flies! And their mortgage loan is about to adjust to the prevailing interest rates at that time -- and those interest rates are much higher than what the Smiths were used to under their introductory rate!
What do they do? Well, they can try to brave the new financial waters, like some homeowners do. But if they can't make their mortgage payments, they will go into foreclosure. So instead, they try to refinance their mortgage to a lower fixed-rate mortgage spread over 30 years or so. This is the basic definition of mortgage refinance -- you are replacing and old mortgage loan with a new one, ideally to lower your interest rates. Now, the Smiths are another statistic of California home loan mortgage refinancing.
http://www.mortgage-refinance-advice.com/california-mortgage-refinancing.php
Choosing a Home Mortgage Refinancing Lender
Each day, hundreds of Americans refinance their home mortgage loans. Some do it because they've improved their credit scores and subsequently qualify for lower interest rates. Others do it to pull money out of their home equity, with a cash-out refinance.
Are you considering the same thing? If so, you will have to work with a home mortgage refinancing lender. This is the lender through which you will pay off your old mortgage loan in exchange for a new one. But how do you choose the best home mortgage refinance lender? How can you protect yourself while getting the best interest rate and mortgage terms? These are some of the questions we will answer in this article.
Mortgage Refinance Lender - Still Just a Lender
Many mortgage lenders claim to specialize in refinance loans. But in reality, most are just regular lenders who offer mortgage refinance as one of their many products. In truth, there's not much that's unique about a home mortgage refinancing lender (as compared to any other lender). Nearly all mortgage companies handle refinance loans -- they'd be silly not to, because refinancing is big business.
Here's the bottom line. Don't think you have to find a mortgage refinance "specialist." It's more important to find a trustworthy lender who offers competitive rates. Most mortgage lenders offer mortgage refinancing as part of their product line.
Compare Lenders On Various Criteria
Shopping for a home mortgage refinancing lender is like shopping for anything else. The more comparisons you make, the better deals you can find. The most obvious point of comparison between mortgage lenders is the interest rate they're willing to offer you, as this will partly determine your overall mortgage payment. You also want to compare other aspects of the home mortgage loan, including the fees associated with it, closing costs, penalties ... in short, everything.
Trust Goes a Long Way
When choosing a home mortgage refinancing lender, you should also consider the less tangible qualities such as reputation and trustworthiness. There are some mortgage companies out there who prey on consumers, especially those consumers who find themselves in bad credit refinancing situations. Though they represent the minority (thankfully), these so-called "predatory" lenders are something to watch out for.
One of the best ways around this is to choose a mortgage refinance lender with a solid reputation, a long history, and a well-known name. Such a lender would be more likely to treat you fairly, since they have invested so much in their brand, name, reputation, etc.
http://www.mortgage-refinance-advice.com/mortgage-refinance-lender.php
Are you considering the same thing? If so, you will have to work with a home mortgage refinancing lender. This is the lender through which you will pay off your old mortgage loan in exchange for a new one. But how do you choose the best home mortgage refinance lender? How can you protect yourself while getting the best interest rate and mortgage terms? These are some of the questions we will answer in this article.
Mortgage Refinance Lender - Still Just a Lender
Many mortgage lenders claim to specialize in refinance loans. But in reality, most are just regular lenders who offer mortgage refinance as one of their many products. In truth, there's not much that's unique about a home mortgage refinancing lender (as compared to any other lender). Nearly all mortgage companies handle refinance loans -- they'd be silly not to, because refinancing is big business.
Here's the bottom line. Don't think you have to find a mortgage refinance "specialist." It's more important to find a trustworthy lender who offers competitive rates. Most mortgage lenders offer mortgage refinancing as part of their product line.
Compare Lenders On Various Criteria
Shopping for a home mortgage refinancing lender is like shopping for anything else. The more comparisons you make, the better deals you can find. The most obvious point of comparison between mortgage lenders is the interest rate they're willing to offer you, as this will partly determine your overall mortgage payment. You also want to compare other aspects of the home mortgage loan, including the fees associated with it, closing costs, penalties ... in short, everything.
Trust Goes a Long Way
When choosing a home mortgage refinancing lender, you should also consider the less tangible qualities such as reputation and trustworthiness. There are some mortgage companies out there who prey on consumers, especially those consumers who find themselves in bad credit refinancing situations. Though they represent the minority (thankfully), these so-called "predatory" lenders are something to watch out for.
One of the best ways around this is to choose a mortgage refinance lender with a solid reputation, a long history, and a well-known name. Such a lender would be more likely to treat you fairly, since they have invested so much in their brand, name, reputation, etc.
http://www.mortgage-refinance-advice.com/mortgage-refinance-lender.php
Increase Your Credit Score Before Refinancing a Mortgage
People refinance their mortgages for many different reasons. But the end goal is usually the same in all cases -- get a better interest rate!
Improving your credit score is a crucial step in qualifying for a better interest rate. Sure, you can refinance to take advantage of a more favorable market. But when you improve your credit score at the same time, you could get an even lower rate. This, of course, translates to a small mortgage payment each month.
Maintaining a Good Credit Score
When it comes to your credit score, an ounce of prevention is worth a pound of cure. It's a lot easier to maintain good credit than it is to recover from bad credit. So the best strategy is to stay out of that "neighborhood" to begin with. That way, when the time comes to refinance your mortgage, you'll be more likely to qualify for the best rate.
Five steps to a better credit score:
1. Debt-to-Income Ratio
Try to keep your debt-to-income ratio at 20% or below. Mortgage lenders like it when your overall debt equals no more than 20% of your net monthly income. If you're currently above the desired 20% mark, try to pay down your debt as quickly as possible.
2. Reducing Balances
Keep your credit card balances as low as possible. When these balances get out of control, it increases your overall debt. This leads to an unfavorable debt-to-income ratio (previous item).
3. Paying Bills
Pay all your bills on time. You've probably heard this one before, but that's only because it goes hand in hand with a good credit score. On the contrary, a history of late payments will lower your score.
4. Paying Minimums
Pay your minimum balances. Every time you receive a credit card bill, pay at least the minimum amount that's due. If you can pay more than the minimum, that will certainly help. But at the least, pay off those minimums religiously. This will reduce your credit card balance more quickly and help you reach a favorable debt-to-income ratio (as mentioned above).
5. Controlling Credit
Avoid taking on too many loans. If you apply for a line of credit too often, you might send a signal that you cannot manage your finances.
Refinancing your mortgage to take advantage of lower interest rates can be a smart financial move. But when you refinance with good credit, you stand an even better chance of lowering your interest rate. So be proactive in maintaining a good credit score.
http://www.mortgage-refinance-advice.com/increase-credit-score.php
Improving your credit score is a crucial step in qualifying for a better interest rate. Sure, you can refinance to take advantage of a more favorable market. But when you improve your credit score at the same time, you could get an even lower rate. This, of course, translates to a small mortgage payment each month.
Maintaining a Good Credit Score
When it comes to your credit score, an ounce of prevention is worth a pound of cure. It's a lot easier to maintain good credit than it is to recover from bad credit. So the best strategy is to stay out of that "neighborhood" to begin with. That way, when the time comes to refinance your mortgage, you'll be more likely to qualify for the best rate.
Five steps to a better credit score:
1. Debt-to-Income Ratio
Try to keep your debt-to-income ratio at 20% or below. Mortgage lenders like it when your overall debt equals no more than 20% of your net monthly income. If you're currently above the desired 20% mark, try to pay down your debt as quickly as possible.
2. Reducing Balances
Keep your credit card balances as low as possible. When these balances get out of control, it increases your overall debt. This leads to an unfavorable debt-to-income ratio (previous item).
3. Paying Bills
Pay all your bills on time. You've probably heard this one before, but that's only because it goes hand in hand with a good credit score. On the contrary, a history of late payments will lower your score.
4. Paying Minimums
Pay your minimum balances. Every time you receive a credit card bill, pay at least the minimum amount that's due. If you can pay more than the minimum, that will certainly help. But at the least, pay off those minimums religiously. This will reduce your credit card balance more quickly and help you reach a favorable debt-to-income ratio (as mentioned above).
5. Controlling Credit
Avoid taking on too many loans. If you apply for a line of credit too often, you might send a signal that you cannot manage your finances.
Refinancing your mortgage to take advantage of lower interest rates can be a smart financial move. But when you refinance with good credit, you stand an even better chance of lowering your interest rate. So be proactive in maintaining a good credit score.
http://www.mortgage-refinance-advice.com/increase-credit-score.php
Mortgage Refi Costs - Understanding Your Refinancing Costs
Understanding Mortgage Refi Costs
Refinancing a mortgage loan involves paying off the original mortgage and taking on a new one. In other words, you are "trading" your original mortgage loan for a new loan, usually to obtain a lower interest rate or more favorable terms.
But a mortgage refi is not always a good idea. Sometimes, a refi will cost more money than it will save you. In such cases, the refinancing costs will exceed the amount you save (through lower interest rates), thus making the refinance a bad financial move.
So how do you know if a mortgage refi is right for you? By understanding the full cost of refinancing the loan. Once you learn how to determine refinancing costs -- and you're able to compare those costs to your long-term savings over the life of the new loan -- you will know whether or not refinancing is the right thing to do.
What Makes Up Refinancing Costs?
If you remember back to the day you closed on your home (and took on your original mortgage loan), you will remember paying for closing costs. Many of these same closing costs will apply to your mortgage refi as well. These refinancing costs and fees will vary from one refi to the next, depending on the type of new loan, the borrower's qualifications, etc. With that said, here are some of the refinancing costs you are likely to encounter:
* Mortgage Application Fee - Regardless of the exact nature of your mortgage refi, you will almost always encounter an application fee. The mortgage lender charges this fee to cover the upfront cost of reviewing your loan request, checking your credit, etc. Mortgage application fees usually range from $100 to $350, so be sure to ask about them in advance.
* Origination Fees - In most mortgage refi situations, you will also pay a fee to have the loan processed. This is known as the origination fee, and it's usually expressed as a percentage point of the overall loan amount. For example, if your new mortgage is for $100,000 and the lender charges you a one-point origination fee, the fee would equal one percent of the loan amount or $1,000. The lender may allow you to finance this fee by adding it into the loan amount, as opposed to paying the fee up front.
* Title Search and Insurance - Before offering you a mortgage refinance, your chosen lender will examine public records to ensure that you own the property (just like when you took on the original mortgage). The initial cost of your title insurance policy is usually combined with this fee as well. The combined cost of this mortgage refi item usually averages between $400 and $700. As always, ask your refinance lender for the exact amount in advance.
* Attorney Fees - The mortgage lender will have an attorney review all documents during the closing / settlement process. While this process always takes place, different lenders handle the costs in different ways. Some lenders pay it themselves (for competitive reasons), while others pass the cost on to the borrower. This fee may range from $100 to $300 or more.
* Appraisal Fee - Like most refinancing costs, this is another fee you also encountered when you took on the original mortgage loan. Lenders will have the property appraised in order to ensure that it is worth the amount you paid for it. If your mortgage refi is through the same lender that gave you your original mortgage loan, you might not have to have the home appraised again. Appraisal fees range from $150 to $450.
* Prepayment Penalty - Some lenders charge a penalty fee if you pay off your mortgage early. This is referred to as a prepayment penalty, or an early pay-off fee. This fee would have been part of your original mortgage loan terms. Prepayment penalties can sometimes be steep, and they are therefore a common reason that people decide against mortgage refinancing. Refer to your original mortgage document to see if there is a prepayment penalty, and how much that penalty is.
* Other Refinancing Costs - This list of mortgage refi costs is not all-inclusive. Depending on the type of loan you currently have, and the type of refinance you're applying for, you might encounter refinancing costs not mentioned in this article. The important thing is to get all of the costs in advance, before you even apply for a mortgage refi.
Mortgage Refi Calculator - Determining the Break Even Point
Now that you have a better understanding of refinancing costs, you can calculate your "break-even" point to determine whether or not a mortgage refi is right for you. The break-even point (or BEP) is an important concept to grasp. Basically, the BEP comes from comparing the costs of refinancing to the amount of money you will save in the long term, after the mortgage has been refinanced.
You should only refinance a loan if the money you save exceeds the money you pay in costs and fees.
http://www.mortgage-refinance-advice.com/mortgage-refi-costs.php
Refinancing a mortgage loan involves paying off the original mortgage and taking on a new one. In other words, you are "trading" your original mortgage loan for a new loan, usually to obtain a lower interest rate or more favorable terms.
But a mortgage refi is not always a good idea. Sometimes, a refi will cost more money than it will save you. In such cases, the refinancing costs will exceed the amount you save (through lower interest rates), thus making the refinance a bad financial move.
So how do you know if a mortgage refi is right for you? By understanding the full cost of refinancing the loan. Once you learn how to determine refinancing costs -- and you're able to compare those costs to your long-term savings over the life of the new loan -- you will know whether or not refinancing is the right thing to do.
What Makes Up Refinancing Costs?
If you remember back to the day you closed on your home (and took on your original mortgage loan), you will remember paying for closing costs. Many of these same closing costs will apply to your mortgage refi as well. These refinancing costs and fees will vary from one refi to the next, depending on the type of new loan, the borrower's qualifications, etc. With that said, here are some of the refinancing costs you are likely to encounter:
* Mortgage Application Fee - Regardless of the exact nature of your mortgage refi, you will almost always encounter an application fee. The mortgage lender charges this fee to cover the upfront cost of reviewing your loan request, checking your credit, etc. Mortgage application fees usually range from $100 to $350, so be sure to ask about them in advance.
* Origination Fees - In most mortgage refi situations, you will also pay a fee to have the loan processed. This is known as the origination fee, and it's usually expressed as a percentage point of the overall loan amount. For example, if your new mortgage is for $100,000 and the lender charges you a one-point origination fee, the fee would equal one percent of the loan amount or $1,000. The lender may allow you to finance this fee by adding it into the loan amount, as opposed to paying the fee up front.
* Title Search and Insurance - Before offering you a mortgage refinance, your chosen lender will examine public records to ensure that you own the property (just like when you took on the original mortgage). The initial cost of your title insurance policy is usually combined with this fee as well. The combined cost of this mortgage refi item usually averages between $400 and $700. As always, ask your refinance lender for the exact amount in advance.
* Attorney Fees - The mortgage lender will have an attorney review all documents during the closing / settlement process. While this process always takes place, different lenders handle the costs in different ways. Some lenders pay it themselves (for competitive reasons), while others pass the cost on to the borrower. This fee may range from $100 to $300 or more.
* Appraisal Fee - Like most refinancing costs, this is another fee you also encountered when you took on the original mortgage loan. Lenders will have the property appraised in order to ensure that it is worth the amount you paid for it. If your mortgage refi is through the same lender that gave you your original mortgage loan, you might not have to have the home appraised again. Appraisal fees range from $150 to $450.
* Prepayment Penalty - Some lenders charge a penalty fee if you pay off your mortgage early. This is referred to as a prepayment penalty, or an early pay-off fee. This fee would have been part of your original mortgage loan terms. Prepayment penalties can sometimes be steep, and they are therefore a common reason that people decide against mortgage refinancing. Refer to your original mortgage document to see if there is a prepayment penalty, and how much that penalty is.
* Other Refinancing Costs - This list of mortgage refi costs is not all-inclusive. Depending on the type of loan you currently have, and the type of refinance you're applying for, you might encounter refinancing costs not mentioned in this article. The important thing is to get all of the costs in advance, before you even apply for a mortgage refi.
Mortgage Refi Calculator - Determining the Break Even Point
Now that you have a better understanding of refinancing costs, you can calculate your "break-even" point to determine whether or not a mortgage refi is right for you. The break-even point (or BEP) is an important concept to grasp. Basically, the BEP comes from comparing the costs of refinancing to the amount of money you will save in the long term, after the mortgage has been refinanced.
You should only refinance a loan if the money you save exceeds the money you pay in costs and fees.
http://www.mortgage-refinance-advice.com/mortgage-refi-costs.php
Refinance Home Mortgage Loans - Top Reasons for Refinancing
Right now, thousands of Americans are preparing to refinance home mortgage loans. Hopefully, they have done the proper research to determine that mortgage refinancing is, in fact, a wise move for them to make. And hopefully, they can refinance their home mortgage loans in a way that saves them a lot of money over the life of the loan.
But why do people turn to mortgage refinancing in the first place? What are the top reasons for refinancing a home mortgage loan? Here are some of the most common reasons, as cited by the homeowners / borrowers themselves.
Reasons for Refinancing Home Mortgage Loans
1. To Lower the Monthly Payment
Many people use mortgage refinancing to obtain a lower interest rate on their loan, thereby reducing the size of their monthly mortgage payment as well. For example, if you buy a home when interest rates are unusually high, and those interest rates drop considerably a few years down the road, you could refinance the home mortgage loan to capitalize on the lower interest rates of the time.
You could also quality for a lower interest rate if you dramatically improve your credit score. This is another scenario where it might make sense to refinance the mortgage to obtain a lower rate / monthly payment.
But use caution. A lower interest rate will only save you money when spread over a certain period of time and a certain number of mortgage payments. You will pay closing costs when you refinance the home mortgage, so you want to make sure the money save exceeds the money you pay in closing costs. Learn more from our related article, Should I Refinance?
2. To Pay Off the Loan Faster
Mortgage refinance is one of several ways to shorten the length of a mortgage loan (and thus pay off the loan faster). Perhaps the most common example is refinancing a home mortgage loan to go from a 30-year loan to a 15-year loan. Obviously, this could increase the size of the monthly mortgage payment, since it condenses the payments into a shorter period. But for homeowners who can afford the difference in monthly payment, and who want to pay off the loan faster, this can be a viable option.
3. To Get Cash Out of the Equity
Let's start with a basic definition of home equity, just so we're on the same page. Home equity is the difference between the home's value and the amount the homeowner still owes on the mortgage. If a home is valued at $100,000 and the mortgage balance is $90,000, the equity is $10,000 (or 10% of the home's value).
Many homeowners refinance home mortgage loans in order to draw cash out of their equity. This is called a cash-out refinance. With this option, the homeowner receives additional funds from the lender (in addition to the existing loan being paid off / refinanced). People use cash-out refinancing to pay for vacations, children's college tuition, home improvement, and other "big ticket" items.
4. To Avoid a Mortgage Adjustment
Many homeowners choose an adjustable rate mortgage as a way to obtain lower interest rates -- and thus pay a lower mortgage payment. But as the name implies, the adjustable rate mortgage will eventually adjust or "reset" to a higher interest rate.
When and how often the mortgage loan adjusts is something you will know in advance, because the mortgage lender is required by law to tell you such things. But you won't know the amount of the adjustment, because nobody can predict what interest rates will do in the future. This is the primary disadvantage of an adjustable rate mortgage, and it leads many people to refinance their mortgages prior to the adjustment phase.
When NOT to Refinance a Home Mortgage Loan
Here's the important thing to take away from this article. People use mortgage refinancing for many different reasons, and in many cases it's a smart financial move. But it's not the right thing to do in all occasions, as the cost of refinancing can sometimes exceed the savings. To learn about scenarios when refinancing is not the best move, read our article on when not to refinance.
http://www.mortgage-refinance-advice.com/refinance-mortgage-loans.php
But why do people turn to mortgage refinancing in the first place? What are the top reasons for refinancing a home mortgage loan? Here are some of the most common reasons, as cited by the homeowners / borrowers themselves.
Reasons for Refinancing Home Mortgage Loans
1. To Lower the Monthly Payment
Many people use mortgage refinancing to obtain a lower interest rate on their loan, thereby reducing the size of their monthly mortgage payment as well. For example, if you buy a home when interest rates are unusually high, and those interest rates drop considerably a few years down the road, you could refinance the home mortgage loan to capitalize on the lower interest rates of the time.
You could also quality for a lower interest rate if you dramatically improve your credit score. This is another scenario where it might make sense to refinance the mortgage to obtain a lower rate / monthly payment.
But use caution. A lower interest rate will only save you money when spread over a certain period of time and a certain number of mortgage payments. You will pay closing costs when you refinance the home mortgage, so you want to make sure the money save exceeds the money you pay in closing costs. Learn more from our related article, Should I Refinance?
2. To Pay Off the Loan Faster
Mortgage refinance is one of several ways to shorten the length of a mortgage loan (and thus pay off the loan faster). Perhaps the most common example is refinancing a home mortgage loan to go from a 30-year loan to a 15-year loan. Obviously, this could increase the size of the monthly mortgage payment, since it condenses the payments into a shorter period. But for homeowners who can afford the difference in monthly payment, and who want to pay off the loan faster, this can be a viable option.
3. To Get Cash Out of the Equity
Let's start with a basic definition of home equity, just so we're on the same page. Home equity is the difference between the home's value and the amount the homeowner still owes on the mortgage. If a home is valued at $100,000 and the mortgage balance is $90,000, the equity is $10,000 (or 10% of the home's value).
Many homeowners refinance home mortgage loans in order to draw cash out of their equity. This is called a cash-out refinance. With this option, the homeowner receives additional funds from the lender (in addition to the existing loan being paid off / refinanced). People use cash-out refinancing to pay for vacations, children's college tuition, home improvement, and other "big ticket" items.
4. To Avoid a Mortgage Adjustment
Many homeowners choose an adjustable rate mortgage as a way to obtain lower interest rates -- and thus pay a lower mortgage payment. But as the name implies, the adjustable rate mortgage will eventually adjust or "reset" to a higher interest rate.
When and how often the mortgage loan adjusts is something you will know in advance, because the mortgage lender is required by law to tell you such things. But you won't know the amount of the adjustment, because nobody can predict what interest rates will do in the future. This is the primary disadvantage of an adjustable rate mortgage, and it leads many people to refinance their mortgages prior to the adjustment phase.
When NOT to Refinance a Home Mortgage Loan
Here's the important thing to take away from this article. People use mortgage refinancing for many different reasons, and in many cases it's a smart financial move. But it's not the right thing to do in all occasions, as the cost of refinancing can sometimes exceed the savings. To learn about scenarios when refinancing is not the best move, read our article on when not to refinance.
http://www.mortgage-refinance-advice.com/refinance-mortgage-loans.php
The Basic Elements of Mortgage Refinancing
If you are planning to refinance your mortgage loan in the near future, it's time to start your research and education process! The more you learn about mortgage refinancing, the more able you will be to make smart financial decisions regarding your refinance.
We have listed this article first in the refinance articles section for a reason. It gives a basic overview of the mortgage refinance process that will pave the way for your future research.
Basic Elements of Mortgage Refinancing
Let's start with three important concepts that will come into play when you refinance your mortgage. By understanding these concepts, and keeping them in mind when choosing a mortgage lender and mortgage terms, you'll be more likely to make wise decisions. These three concepts are (1) the term of your mortgage, (2) the interest rate associated with the mortgage, and (3) other expenses associated with the mortgage.
1. The Term of Your Mortgage
When you hear the phrase "mortgage term," it usually refers to the length of time (and other conditions) you will have to repay the mortgage loan. For instance, a 30-year mortgage loan is a common term. With this option, the borrower has 30 years to repay the mortgage loan -- unless, of course, he or she chooses to refinance it first.
As logic and math would dictate, a longer mortgage term has lower monthly payments because those payments are spread over more months. And of course the opposite is true -- shorter term mortgages have higher monthly payments.
2. The Interest Rate
All loans have interest rates associated with them, and mortgage loans are no different. When you obtain a mortgage loan, the interest rate is one of the primary "ingredients" that determines the monthly amount you will have to pay.
When it comes to mortgage refinance, interest rates are a key motivator for many homeowners. When you refinance a mortgage and obtain lower interest rates as part of that refinance, you stand to save a lot of money over the long haul. But you need to be in the home (and maintain the new mortgage) for a certain period of time before you reach the "break even" point. After this point, your interest savings will make the cost of refinancing worthwhile.
3. Other Mortgage Expenses
A third piece of the mortgage puzzle to bear in mind is the cost of obtaining the mortgage. This cost is largely determined by the various fees associated with mortgage loans. If you are considering a mortgage refinance, then you have already been through at least one mortgage process in the past. So you probably remember all of those fees and costs that you had to pay on your mortgage -- above and beyond the principal loan amount and interest.
These fees are very important when it comes to mortgage refinancing. They are a key consideration when deciding whether or not it makes sense to refinance your mortgage. A basic rule of thumb when making such a decision is that the money you save from refinancing (over the term of the loan) should exceed the cost of refinancing.
This only makes sense -- you wouldn't want to pay more to refinance the mortgage than you save over the loan's term. That would be a money loser. For this reason, mortgage fees and costs are one of three most important elements of refinancing.
http://www.mortgage-refinance-advice.com/basics-of-refinancing.php
We have listed this article first in the refinance articles section for a reason. It gives a basic overview of the mortgage refinance process that will pave the way for your future research.
Basic Elements of Mortgage Refinancing
Let's start with three important concepts that will come into play when you refinance your mortgage. By understanding these concepts, and keeping them in mind when choosing a mortgage lender and mortgage terms, you'll be more likely to make wise decisions. These three concepts are (1) the term of your mortgage, (2) the interest rate associated with the mortgage, and (3) other expenses associated with the mortgage.
1. The Term of Your Mortgage
When you hear the phrase "mortgage term," it usually refers to the length of time (and other conditions) you will have to repay the mortgage loan. For instance, a 30-year mortgage loan is a common term. With this option, the borrower has 30 years to repay the mortgage loan -- unless, of course, he or she chooses to refinance it first.
As logic and math would dictate, a longer mortgage term has lower monthly payments because those payments are spread over more months. And of course the opposite is true -- shorter term mortgages have higher monthly payments.
2. The Interest Rate
All loans have interest rates associated with them, and mortgage loans are no different. When you obtain a mortgage loan, the interest rate is one of the primary "ingredients" that determines the monthly amount you will have to pay.
When it comes to mortgage refinance, interest rates are a key motivator for many homeowners. When you refinance a mortgage and obtain lower interest rates as part of that refinance, you stand to save a lot of money over the long haul. But you need to be in the home (and maintain the new mortgage) for a certain period of time before you reach the "break even" point. After this point, your interest savings will make the cost of refinancing worthwhile.
3. Other Mortgage Expenses
A third piece of the mortgage puzzle to bear in mind is the cost of obtaining the mortgage. This cost is largely determined by the various fees associated with mortgage loans. If you are considering a mortgage refinance, then you have already been through at least one mortgage process in the past. So you probably remember all of those fees and costs that you had to pay on your mortgage -- above and beyond the principal loan amount and interest.
These fees are very important when it comes to mortgage refinancing. They are a key consideration when deciding whether or not it makes sense to refinance your mortgage. A basic rule of thumb when making such a decision is that the money you save from refinancing (over the term of the loan) should exceed the cost of refinancing.
This only makes sense -- you wouldn't want to pay more to refinance the mortgage than you save over the loan's term. That would be a money loser. For this reason, mortgage fees and costs are one of three most important elements of refinancing.
http://www.mortgage-refinance-advice.com/basics-of-refinancing.php
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