Are You Asking: “Should I Refinance?”

 Refinance Process Info  No Responses »
Oct 152011
 

Home Mortgage Refinance Loans

Welcome to an independent look at the home mortgage refinance process

Our aim is to provide unbiased information to help you know when to refinance

The Mortgage Refinance Journal is your unbiased and independent stop for information and advice for getting the lowest rate, best terms, and easiest experience when it comes to mortgage refinancing!  We concentrate on innovate home mortgage refinance products and financing ideas.  Best of all, we are fully independent – we do not work directly with any broker or provider of home mortgage loan product, so we can provide unbiased information and advice about the home mortgage refinance process.  Our goal is to answer the common question: “Should I refinance my mortgage?”

The Mortgage Refinance Journal will be presenting various kinds of home mortgage refinance types as we explore when to refinance, some you have heard of and some you probably have not.  Our coverage will include topics such as:

  • “Part and part” home mortgages which allow you to pay off your mortgage in two steps
  • Innovative home equity products that offer some protection against rates rising
  • Assumable mortgages that can make it easier to sell your home in the future
  • Ways to asses the ideal term for your home mortgage loan
  • How to choose a broker or bank wisely to get the lowest home mortgage refinance rate
  • How to compare different types of home mortgage loan products, including interest only and reverse mortgages

Our goal is to give you enough information about home mortgage loan products and the mortgage refinance process in general so that you will know about each type of possible refi before you call a prospective mortgage broker.  We do not think it is that person who should be answering the question “Should I refinance my mortgage?” because they are inherently biased.  And once again, our independence from any mortgage broker or bank allows us to present this information in a fully unbiased way.

Aside from this page which has the latest information and advice about the mortgage refinance process, we have the following comprehensive pages:

How to get the lowest mortgage refinance rate covers the information and advice you need to get the most favorable rate and terms

Mortgage refinance process terms and definitions gives you the ability to talk the talk during the home mortgage refinance process

The different types of home mortgage refinance loan covers lesser known types of mortgage loans

Tips to getting the best mortgage provides overall tips and tricks and overall knowing when to refinance

About Us gives you information about why we are here providing free information about home mortgage loans

List of Fees allows you to see what the home mortgage refinance charges might be and gives a range of how much they should be

Steps in the refinance process brings you step by step through the home mortgage loan process

When to Refinance gives some information about the common question – when should I refinance my home loan

The Mortgage Refinance Journal will also explore the various terms you can get on more conventional home mortgage refinance products as well, from lengths of time to types of payments on your home refinance loan.  The more informed and knowledgeable you are when you call your bank or broker, the better you are likely to do in the home mortgage refinance process.  We want to provide you with the unbiased independent information you need to get a great rate and the most favorable terms you can!

Thanks for visiting and we hope that in the end you will get your answer to the question “Should I refinance my mortgage?”

 Posted by at 7:12 pm

Should I Refinance My Mortgage to Get a Longer Term?

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Jun 172013
 

One of the only ways to lower mortgage payments without lowering the overall rate is by extending the term.  If you keep the balance the same but extend the time you have to pay it off, then your payments will go down.  So some people find themselves asking the obvious question, “Should I refinance my mortgage in order to extend the term”.  The answer starts with deciding whether you do in fact need to to lower your payment.  You may want to if:

- You have higher rates on other loans that you will not be paying off soon.  It may be worth extending a low rate mortgage if it will allow you to pay off higher rate loans, since you can then pay off the remaining balance quickly anyway after the other loans are paid off.

- You have upcoming needs such as educational costs or necessary home improvements that are important and will require you to save money you otherwise will not be able to.

- There is unpredictability in your employment or income situation and you want to make sure you have maximum flexibility just in case – you can still make higher payments and pay things off in the original time frame.

But if you are asking “should I refinance my mortgage to get a longer term” merely for the sake of getting a lower payment and none of the above is true, you may find that all the new term does is keep you locked in longer – despite best intentions of trying your best to meet the former term, you may find it hard to stay that disciplined.  And of course, refinancing is not usually completely free, so you will likely be weighing the costs against the reasons bulleted above.

So in this case the answer to “should I refinance my mortgage” may be more complicated than it seems.  There are compelling reasons if the interest rate will in fact be completely equal and the cost is almost zero.  But any difference in rate or cost to refinance any there is a need to weigh things out.  We will cover this in subsequent posts.

 Posted by at 11:46 am

Should I Refinance My Mortgage For Better Terms

 Refinance Guidance  No Responses »
Jun 032013
 

Of course the main reason why people refinance their mortgage is for a better interest rate.  Perhaps the second most common reason that people refinance is to change the number of years left, whether it is expanding the number of years in order to lower payments, or decreasing them in order to reduce the interest rate.  Yet some homeowners are asking themselves, “Should I refinance my mortgage to get better terms?”  The answer to this question is often obvious.

In most cases, mortgages that are similar have similar terms – 30 year fixed rate mortgages often come with similar terms, as do 7/1 ARMS and everything in between.  But there are sometimes differences, and these differences may prompt an answer to the “Should I refinance my mortgage” question.  Some examples:

1. If your current mortgage has terms forbidding you from paying off your mortgage early, and you foresee wanting to do so so that you can eliminate your mortgage expense, you might want to refinance to change that term.

2. If your current mortgage has terms that do not allow you to let someone who buys your property assume the favorable rate you have, and you find a broker or bank willing to give you such terms, that may also be a reason to refinance.

3. If your current mortgage has terms that prohibit a certain use of the property – such as using it as a second home or renting it out – you may want to refinance in order to use it for that new purpose.

Of course this is not an exhaustive list of why you might want to refinance your mortgage into a loan with a similar rate just to change the terms, but we did want to give some examples.  As always our gaol is to answer the question “Should I refinance my mortgage?” and in this case the answer may be yes, even if the only thing that changes is the terms.

 Posted by at 11:47 am

Should I Refinance My Mortgage if Only to Get A Small Reduction?

 Refinance Guidance  No Responses »
May 232013
 

Perhaps the most common question mortgage brokers and banks get from customers trying to decide when to refinance is “Should I refinance my mortgage if it’s only a ___________ reduction in rate?”  The answer can be complicated, but what people do need to understand is that if they are asking the mortgage broker or bank they are certainly asking the wrong person.  As we’ve stated many times, these people are in the industry and although the vast majority are honest and hard-working people like me and you, they cannot likely completely shake their biases when it comes to when to refinance.  Their lean will always be toward “yes”.

So, when you will only save a small percentage, what is the answer to the question “Should I refinance my mortgage?”  There are basically three calculations to make:

1. First, add up all closing costs that you will pay out-of-pocket.  Do not include anything like taxes and prepaid interest that you would pay on your existing mortgage anyway.

2. Now here is the part most people leave out when figuring out when to refinance: Take that number and use an online calculator to determine how much it would be worth at current interest rates if you left it in the bank.  You see, that money would not just stay the same over time, but rather would actually grow in value if used for a different purpose.

3. Now compare that higher number – called “future value” – with the savings you will have on your mortgage each month x the number of months (conservatively) that you will likely live in that home.  If the savings are appreciably greater, by enough to make the effort worth it, then it may be that you have your answer to the question, “Should I refinance my mortgage?”

Knowing when to refinance can be easy during times of significant rate drops, but the above can be helpful when rates only drop in smaller increments.

 Posted by at 11:11 am

The Pitfalls of Mortgage Advertisements

 Refinance Guidance  No Responses »
Apr 262013
 

Most mortgage brokers and banks are not out to fool you.  They know that once you call and apply you may or may not stay with them for your refinance, so they can’t be outrageous about the claims that they make.  Therefore, the majority of mortgage refinance advertisements contain relatively accurate information that can help you compare.  That said, there are still some pitfalls to using advertisements in the newspaper or on the web to decide which mortgage broker or bank to go with, and they include:

1. Make sure you are comparing apples to apples.  One ad may be referring to a 5/1 ARM mortgage, while another a 30 year fixed rate mortgage.  These two different types of mortgage may obviously have different rates that can’t really be used to compare companies.  Many mortgage brokers and banks use their refinance product with the lowest rates for their ads.

2. Look at APR and make sure you ask very quickly what the fees will be for your refinance.  The broker or bank may post a very low rate, but a higher corresponding APR suggests you are paying certain fees in order to get that favorable interest rate.

3. When advertised mortgage interest rates look similar, research the differences in customer experiences with those brokers and banks.  Of course each lender is not going to be able to tell you how responsive they are, but you need to know which one will be easier to work with and most importantly close your loan on time.

4. Finally, while most mortgage brokers and banks are not out to fool you, some are.  When a rate for a comparable refinance is significantly lower with one company that another you should be suspicious.  A dramatic difference is very rare, so do more homework before choosing a product that seems almost too good to be true.

Also, although it may sound overly simple, make sure if you are calling a mortgage broker or bank you have already answered the basic question: “Should I refinance my mortgage?”  You don;t want to be talked into something you don’t really need.

 Posted by at 11:16 am

Three Types of Mortgage Rate and Payment Caps

 Types of Refinance  No Responses »
Apr 162013
 

Many people who choose an adjustable rate mortgage, or an ARM that starts fixed and then becomes adjustable, will be offered the protection of caps in either the rate or the payment.  This may sound simple, and many times it is.  However, you need to keep in mind that caps in either your refinance rate or your payment amount can come in several varieties, for example:

Rate caps are simply limits on how much interest you can be charged and therefore how high the part of your mortgage payment that is interest can be.  Though usually these types of mortgage interest rate caps are straightforward, make sure you know of any caveats.  There are really two types of mortgage interest rate caps you might be offered with your adjustable rate mortgage

 

  • A Periodic cap does not impose one cap but several.  This type of mortgage interest rate cap limits the amount your interest rate can increase in periods.  So for example there may be one cap for the first ten years, a higher one for the next ten, and then still a higher one for the last ten of a thirty year term ARM.
     
  • An Overall cap is much simpler than a periodic cap, and basically limits the maximum interest rate over the entire course of the mortgage loan. Overall caps are required by law, so keep in mind that even if you have a periodic cap the overall cap on what the highest interest rate will be will still be in place.

 

Some mortgage also come with Payment caps that function independently of the rate.  In these cases it does not really matter how high interest rates go, your monthly payment cannot go higher than the cap.  Of course this also means there will be the possibility that your mortgage will extend beyond its set number of years, or there has to be a balloon payment at the end.

 

 Posted by at 11:16 am

Best Time of Year for Low Mortgage Rates?

 Refinance Guidance  No Responses »
Mar 152013
 

The short answer to the question os what the best time of year is for low mortgage rates is that there just simply is none.  Mortgage rates are dependent on many factors, none of them particularly seasonal in nature.  So overall we would certainly not suggest that you either put off a good rate lock because it’s not the right time of year, or be more certain that a rate is favorable at another time of year.  All of this said, there are a few factors related to mortgage refinancing that are remotely seasonal.

Home buying in most parts of the country is seasonal, whether it’s because families like to move into new homes so that their kids can start in a new school at the beginning of the tear, because looking for homes is much easier to do when it is relatively warm, or because the entire moving process is just easier in the warmer months.  So this means that with something like mortgages, where the products are all fairly similar – rates tend to be fairly similar between different lenders – there needs to be another way for banks and brokers to compete.  In the off-season or slow season, there is likely less incentive for brokers and banks to put a lot of effort into marketing a great financial incentive to choose them.  But in the season when everyone is competing for customers, incentives in the form of reduced origination and other broker and bank fees tend to blossom.

Interestingly, however, none of the above creates a certain rule.  And even when brokers and banks are not actively advertising a better mortgage refinance fee they still want your business.  In fact in some ways they want it even more in the slow season when brokers are looking for commissions and banks are looking for fees that may be scarce.  So while at these times there may not be a lot of effort being put into advertising low fees, you may be able to talk your way into some!

When the Seller Holds the Mortgage

 Types of Refinance  No Responses »
Mar 052013
 

It is less common than ever these days that sellers will finance the sale of their home.  In these cases the seller offers an interest rate and terms, and just like a bank holds on to the mortgage note until it is paid off, keeping their old home as collateral.  The benefits of this type of deal to the seller is that she or he can often charge a rate higher than what they might get with a conventional investment, with a tangible piece of collateral that they can sell off if the buyer defaults.  The benefits to the buyer are that there are usually far fewer closing costs and if she or he has bad credit or any other problems getting a mortgage those are not an issue.

So why then are these seller financed mortgage deals not very common?  It boils down to two major reason, one on each side.  For the seller, there is usually a need to buy a new property to live in and that usually requires the large amount of cash they will get by selling their original home.  Even if that money is merely being used to pay off an existing mortgage, the seller may need to do that to be able to afford another mortgage, or even to be approved for another mortgage.  For the buyer, lower mortgage rates are often available through a bank, and it is often not possible to refinance a seller-held mortgage when rates fall.

Seller financed properties, and therefore seller held mortgages are a bit more popular with second homes and vacation properties however, since buyers often have more trouble getting mortgages for them, rates can be higher when they do, and sellers often don;t need the cash right away to pay for another property.  Thus these ingredients actually work together to change the dynamics when it is a vacation home.

What is “Future Value” as it Relates to Mortgage Refinancing?

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Jan 282013
 

The decision about whether to refinance is often relatively simple.  But the refinance choices that come after that initial decision are the ones that require more research and knowledge.  In this post we will be writing about two such choices: The “Buy Down” and the “Float”.  Put simply, a “buy down” is when for adding money in fees and/or points you can lower the interest rate your will pay on your mortgage after refinancing.  A “float” is when you are allowed to re-lock into a lower interest rate if mortgage rates drop while you are in the refinance process.  In both cases you need to assess how much you will save with the lower rate versus the cost of the float or buy down.  Is the math as simple as it sounds?  Not really.

Now if the difference between what you will save with the float or buy down over the number of years you will live in that home versus the cost is highly significant, you don;t need to read any further.  But if the float or buy down provides minimal to moderate savings, you need to know what “Future Value” means.  Think of it this way: If you have to pay a large amount of money for anything, in this case a refinance float or buy down, that money cannot be used for anything else and someone else will get the interest on it.

Consider an example with the most basic math: Imagine that the buy down costs you $10,000 in points and fees.  You are initially happy because the savings with the buy down will be $11,000 over the ten years you will live in your home.  The decision is easy, right?  It’s $1,000 better to get the mortgage rate buy down.  Not necessarily.  Imagine that instead of the buy down you put the same $10,000 into a CD with 3% annual return.  Depending on how often the CD compounds, you will likely have around $13,500 when it matures.  The future value of your money is actually $13,500.

Often the calculations of future value is much more complicated than that, and it may be worth meeting with a financial advisor if so.

When No Cost Financing Really Isn’t

 Refinance Guidance  No Responses »
Jan 092013
 

It can be very intriguing and tempting when your mortgage broker or bank offers you a no cost mortgage refinance.  If true, a no cost refinance takes a lot of the guesswork out of whether you should refinance your mortgage at that time.  Presumably a major factor that goes into the decision of whether or not to refinance – the cost of the new loan – is taken out of the equation.  But when is a no cost mortgage refinance really not a no cost mortgage refinance?  There are two general categories:

 1. The first category of misleading no cost mortgage refinance offers is when the lender will truly cover all the closing costs, but in return you are charged a higher interest rate. This higher interest rate on your mortgage will last for the entire term of the loan, and may make the fact that you are paying no fees not worthwhile.  This higher rate can end up leading you to not choose to refinance now.  But on the other hand, if you still decide to refinance, make sure this “no cost” product is your best choice.

2. The second category of misleading no cost mortgage refinance options is when there are actually fees to close but these fees are included in the amount you are refinancing.  In other words, closing costs are “rolled into” your loan as part of the principle you are going to have to pay off.  So while you don;t have to pay these fees at closing, you will pay them, plus interest, over the life of your mortgage.

Interestingly, both of these “no cost” options may still be a good choice for some mortgage customers.  If the rate you will get is particularly low and you do not have the cash to pay the refinance costs, these options may allow you to refinance when you otherwise could not.  But make sure as you shop around that you are not automatically intrigued by a no cost mortgage refinance product and instead compare all available products.

 Posted by at 11:52 am

Mortgage Refinance Pitfalls – Part Two

 Refinance Process Info  No Responses »
Dec 292012
 

In the post below we wrote about the pitfalls you could run into when looking to refinance your home mortgage, particularly those related to the value of your home and the appraisal process.  But what could go wrong, or at least affect your rate or terms on the refinance later in the process?  Here are the top three pitfalls in the later stages of the mortgage refinance process:

1. The underwriter may have trouble with some aspect of your refinance application.  It is common for the underwriter, who must fully approve your application after you have been initially approved, to come back with some requests such as an explanation of a large deposit in your bank account, or more information about something on your credit report.  In most cases you will be able to easily explain or justify these issues and the refinance process will continue.  However, occasionally the problems in this step are not satisfactorily explained and the refinance process can stop.

2. The broker who you are working with on the mortgage refinance stops doing refinances (if you are working with an individual who works privately), or the company you are working with goes out of business.  Of course this possibility is extremely unlikely, but you should be sure at the start of the refinance process that you have chosen a mortgage company or broker who has been doing this a while and has a solid reputation.

3. You home is damaged by an event that the mortgage broker or bank is aware of.  If there is a hurricane, earthquake, of flood in your area during the refinance process, the mortgage company may be asked by the bank to go out and double-check that there has not been damage to the property that you’re using as collateral for the mortgage.  This problem is complicated because sometimes if they get a promise from a homeowners insurance company that the issue will be fixed the mortgage refinance process can resume.

 Posted by at 12:31 pm
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