If you are thinking about refinancing your mortgage, it is important to know what you need or want out of your new mortgage. There are so many different options available that you really need to do your home work to know which plan best suits your needs.
There are of course many different reasons why homeowners will want to refinance their mortgage, in some cases it is to take advantage of low interest rates, consolidate 2 mortgages into one, looking to shorten the term of the loan to build home equity or to take out some cash to invest in a business or to even pay off other debts to name a few.
Does it Pay for Me to Refinance my House ?
Again you must ask your self why you want to refinance, remember that there are many things to consider first. Such as the current penalty fees you will be incurring for breaking your current mortgage contract, then there are closing costs, you may also have to take out mortgage insurance just to name a few things. All these charges and fees can add up to literally thousands of dollars in the long run.
So does it pay for me to refinance my house ? It will only be beneficial to refinance your mortgage if you plan on staying in your home for the long term. If you are planning to move within the next 5 years, you may want to reconsider refinancing, because the costs will surely outweigh the benefits. Remember that the banks set up mortgage terms in such a way that most of the interest is charges within the first few years of the mortgage. The borrower is essential paying interest only and hardly reducing the principal of the loan at the beginning of the term. This is usually with the first 5- 7 years of the loan, so if you want it to be beneficial , then you must not move in the near future.
Lets look at the main 4 options for refinancing a mortgage
These options include,
1. ) Low fixed rate loans,
2.) Cash-out or Cash back Refinancing
3.) Shorter-term Loan
4.) Longer-term Loan
Low Fixed Rate Loan
This is essentially when you want to take advantage of low interest rates due to a drop in the market , you may want to consider this option if you can reduce your current mortgage rates by at least 2 points, and you plan on staying in your home for at least another 5 years to make up for the refinance fees. You may also want to consider switching to a low fixed rate mortgage if you are currently in an ARM ( adjustable rate mortgage ) . You may opt for a 30 year fixed rate mortgage which will keep you locked in at current rate you refinanced at.
Cash-out or Cash back Refinancing
This when you are looking to take equity out of your home and put cash back in your pocket. In essence your are increasing your debt on the house in order to get the cash out now. However you will end up owing more on the house with this type of refinancing, which will increase your mortgage payments. Yet this may be a good idea if you plan of renovating to increase the home’s value.
Longer-term Loan
You may consider this type of refinancing if your mortgage payments are becoming more than you can currently handle. You can extend the term of the loan in order to reduce the mortgage payments. This has become a very popular move with homeowners in the past year due to the economic crisis in the housing market. Many homeowners have been looking for ways to prevent foreclosure by refinancing their mortgages.
Another option for extending the loan term is through a loan modification. This is for those who are already facing foreclosure and are in desperate need to reduce their mortgage payments to a more manageable level.
Shorter-term Loan
This is of course if you have a surplus in your finances and would like to reduce the term of the loan by paying off more in a shorter time. However even though this is a recognized option, if you are looking at reducing your term, you can simply increase your monthly payments when you have the extra money, and revert back to your regular payment when you want.
Another way to reduce your interest and pay off more principal is to open a mortgage merge account or money merge account. This is a type of account that allows you to merge with your mortgage. It works essentially like a regular bank account except that instead of depositing your pay check into a checking account and then making your mortgage payment at the end of the month, you will deposit that check directly into your mortgage.
Since mortgage interest rates are calculated on a daily basis, by putting money towards your mortgage during the month will actually reduce your principal slightly during that time month and in turn, lower your daily interest charges. The best thing about it is that you can withdraw funds for personal living expenses at any time. Yes your mortgage balance will go up again when funds are withdrawn , however your interest rates will have decreased for the time the money was actually in the account.
Merging your account with your mortgage is a practice that the banks certainly don’t want you to know about , however it is an option more and more people are beginning to discover.
Hopefully this article will help you to determine whether to refinance your mortgage or not.
Owning a home is the American dream, yet it remains an unfulfilled dream for many of us because we never get that mortgage paid off. Until then your bank owns your home and you pay a small fortune in interest payments. The banks know that most homeowners will not stay in the home for more than 7 years, as this is the average time a person will dwell in the home. Because of this, the banks put most of the charges and interest rates in the first few years of the mortgage which means that the homeowner is mostly paying interest on the loan and not reducing the principal at all. At the end of a 30 year fixed mortgage, you may end up paying more interest than what the actual original price of the home was.
So how do you pay off your mortgage early?
Well there is a new approach to paying off your mortgage in a way that does it much sooner than you think. How would you like to pay off the mortgage in 5 years, save a ton in interest and turn your dream into a reality ?
Mortgage Cycle of Debt
It may seem hard to believe, because the banks are never going to tell you this. The bank have secrets they don’t want you to know, however there are people out there today that are actually achieving this seemingly unrealistic goal. One of the things that will help pay off the mortgage early and get out of the cycle of debt is to take all of your income and put it where it can work harder for you . You can actually use the banks system to make money instead of losing it to interest.
Did you know that the banks have a system in which they calculate the interest on your mortgage based on the daily principal balance? So when you make a monthly payment , you are actually paying more interest than if you were to make bi-monthly payments. This is because if you make more payments in a given month, you end up keeping your daily balance at a lower level, thus saving you a lot of interest. Your money can then go to paying off more of the principal resulting in shortening your mortgage term.
There is also some great software available to help homeowners calculate their finances and pay off the mortgage early. Now the good softwares may cost you a bit of money, however they can save you literally tens of thousands of dollars over the course of the mortgage term. However you can do this with out any software if you know the concept involved.
Traditionally most people deposit their pay checks into their checking account and withdraw money to pay for living expenses. In most cases the money sitting in your bank account generates you 0% interest, not to mention the monthly fees and charges they hit you with every month. Not only do you lose money this way, you are still charged with the mortgage interest rate, let’s assume that it is 6% for example. The banks then withdraw your mortgage payment out of your account and actually lend it to other borrowers for a much higher interest rate. So in effect, not only are they charging you for bank fees and daily interest on your mortgage payments, they are actually lending your money to make a profit at your expense. Great system for them and a lousy one for us right?
Well there is good news. What the banks don’t want you to know is that you can actually park your money into your mortgage instead of wasting it in a traditional bank account. Now you may be asking yourself , How do I get my money out for living expenses ? Well there are ways that you can do this as well .
There is such a thing called the ‘money merge account ‘in which you can combine your mortgage and basic bank transactions into 1 account. This will reduce your daily principal as you have money in the account yet you also have the ability to withdraw your money for personal use. Although your cash balance may go down at the end of the month, the time your money was in the account contributed to lowering your interest rates in the meantime. If you repeat this cycle throughout the years it will reduce your principal mortgage at a much higher rate.
Stay tuned for more information on money merge accounts and what is required for you to be able to get out of the mortgage cycle of debt.
Getting approved for a mortgage today is much tougher than it used to be 6 months ago. With the economic crisis still dragging out in the housing market, many homeowners are finding it increasingly difficult to get approved for financing.
According to a survey conducted by the federal government, nearly half of the major banks had tightened their prime lending mortgage guidelines in the last 3 months alone.. Now in many cases if a person wants to get a mortgage, or refinance the current mortgage, they will have to pass more stringent guidelines.
Mortgage pre qualification process
That means that the banks will only consider those who have the highest credit scores, highest income in relation to debt, and the highest value in home equity. So in order to be able to qualify for a loan, you will have to be an “AAA” credit worthy client in their eyes.This doesn’t mean you can’t get a mortgage with bad credit, it simply means that those with lower credit scores and lower incomes will be subjected to higher interest rates as opposed to the more ‘financial secure clients .
A borrower today would need to have a 700 plus credit score , would have to owe less than 40% of his total net worth, and have approximately 50-60% loan to value or more. The banks will essentially use what is called a Loan Level Pricing Adjustment to determine the interest rate a client will have to pay. That must seem pretty far reaching for alot of us and many may feel discouraged by this.
But it seems this has also been affecting home owners that fit the AAA criteria, yet have not been able to get the lowest mortgage rates either in many cases. This is mainly due to FICO and home equity.
“Non prime” borrowers such as jumbo mortgage owners are also being affected by the tightening guidelines lenders are imposing. These loans are too big for the prime market so therefore pose a higher risk to banks who choose to do these kind of mortgages. This has resulted in banks doing less jumbo mortgages which has brought the rates down. However even with lower interest rates, less people will qualify for jumbo mortgages just the same.
However there is a glimmer of hope in the world of mortgage and financial forecasting it seems. Some banks have been slowly loosening their guidlines at little and others have slowed down the process of tightening their guidelines somewhat that may possibly encourage a little economic stimulation.
So the mortgage rates will most likely drop again for a little while, but don’t expect to see it drop to 4% , that opportunity is likely gone forever, but at least there is a good chance to refinance at much lower rate if you time it right.
Bad credit can be caused by many more factors than just defaulting on your payments. There are many factors in determining your credit score, such as how much debt you have in relation to your income, how many credit cards you have and another thing to remember is that every time there is a credit check done on you , it will contribute to lowering your credit score as well. So just because you pay all of your credit cards and bills on time, your credit score may still suffer do to some or all of these factors.
Ok so you want to get a mortgage , but your credit score is not were you would like it to be. With the recent housing crisis, banks have become much more stringent when it comes to lending. Lenders are generally not accepting loan applications from borrowers that have a credit score below 650. So is it still possible to get a mortgage loan with bad credit ?
bad credit mortgage loan
The answer to that question is yes, it is possible to get a mortgage with bad credit . If you are looking to refinance your home with bad credit there are mortgage brokers out there that specialize in this. However, you will most likely be subjected to higher fees and higher interest rates, such is the price we pay for not having a perfect credit score.
One of the benefits of refinancing your mortgage with bad credit, is that once you are approved , you can use that money to pay off other debts, such as credit cards or car loans and this will help improve your credit score immensely. It is even possible to refinance your home for the sole purpose of paying off your credit cards and other debts. Since a refinance is considered a secured loan in where your house is put up for collateral it is not that difficult to find a lender.
The most important thing you can do when trying to get a mortgage with bad credit , is to shop around as much as possible, get quotes from at least 3-4 brokers and let them know you are talking with other mortgage brokers as well. Do your homework and research online to try to find out as much as possible in regards to bad credit mortgage lending practices. You will notice that many lenders and brokers have different mortgage packages and rates, so it is definitely in your best interest to get as much information as you possibly can.
Another thing is that you will want to avoid the banks when looking to refinance, especially if you have bad credit. Unlike brokers, banks are exempt from RESPA laws that govern the obligations for transparency to their customers. Remember that when you are trying to get a mortgage loan with bad credit, you will most likely be paying a higher rate by default so you certainly don’t want to pay any higher rates than you have too.
It is a standard practice between banks and loan originators to mark up the mortgage rate by a half point or so, which may not seem like a large amount, yet if we are looking at 250,000 mortgage at 6.0 , then they add another .05%, that could lead to thousands of dollars more that you will have to pay. Brokers on the other hand, may still try to mark up the loan using deceptive language, yet you can let them know you are aware of RESPA laws and what is considered unethical practices and this will certainly help you with getting a much better deal on your mortgage loan or refinance.
We are seeing an increase in the mortgage rates after a another major sell off in the MBA ( mortgage backed securities ) in the past week. The MBS prices have dropped by 200 basis points , which has pushed up the 30 year fixed rate mortgage to 5.37 % from 4.87 %, that is almost a full percentage point in the past 2 weeks alone.
So why is this happening ?
One thing that is happening is that investors are avoiding treasury debt or risk averse assets, in turn to seek out higher more profitable returns in the stock market. If you are waiting for the interest rates to drop below 5% then this may not be such great news. When the economy grows weak, the Federal Reserve will employ a more lax momentary policy which helps to keep the mortgage rates lower. Obviously when mortgage rates are low , this in turn stimulates the economy by offering more incentive for homeowners to refinance their mortgages therefore making their homes more affordable. This gives people more in pocket money in which contributes to economic stimulation.
Current Mortgage Rates
The Employment Situation Report release for June 2009 showed that salaries were less than what experts had forecast, wages were expected to rise by 2% but only showed an increase of 1%. , it also reported a job loss rate of 345,000 for the month of may, which resulted in an increase in the unemployment rate from 9.2% to 9.4% . After the release, the MBS immediately dropped by a full 100 points which in turn has pushed up the interest rates.
If there is a rise in the unemployment rates, investors will lose confidence in purchasing mortgage backed securities for fear that homeowners can potentially face economic hardships due to a higher possibility of losing their jobs. If a homeowner defaults on the mortgage payments, the investors that purchase MBS’s will take the loss. Remember a decrease in the MBS market creates a rise in the mortgage rates and that is exactly what is happening to the market. This is how the employment rate directly affects mortgage rates in this manner.
So the big question is what will the Federal reserve do to keep mortgage refinance initiatives alive ? So far we haven’t seen much in response in regards to the issue at hand. Will we need rates below 5% to get the economy rolling again ? Will we ever see sub 5% mortgage rates again ? These are some tough questions that only time will tell, in the meantime , how can the real estate and housing market recover if the interest rates keep increasing ?
So how does this affect you if your were looking to refinance your home yet are now holding back due to these current mortgage rates.? Well one consideration is if you are not planning to stay in your home for more than 7 years , you may want to opt for an adjustable rate mortgage. How a Current 5 year adjustable rate mortgages works is that it entails a fixed interest rate for 5 years which is then followed by a twenty five year adjustable rate, these are still currently at 4%. So there is still some maneuverability if you are know you are planning to move within the next few years.
You may want to consult a professional on how and ARM loan amortizes if your are considering getting an adjustable rate mortgage.
Many have been waiting to refinance their mortgages to see if the interest rates will drop any further than we have seen in the last few months. As most already know, we have seen mortgage rates dip below 4.75 % in the US which is partly due to the housing crisis and poor economy. Many have been taking advantage of low mortgage rate refinance opportunities all across the nation, in some cases homeowners were able to reduce their home loans by as much as 3-4 points in which has amounted to literally tens of thousands of dollars in savings over the long run.
However it seems that the mortgage bonanza that so many people have been taking advantage of looks to end soon. At the time of this writing, interest rates have climbed past 5.75 % resulting in a drop in the mortgage market. Obviously those who have been holding right out in the hopes that the rates will drop even further may be kicking themselves right now.
Low Mortgage Rate Refinance
So the question remains, should you refinance now ?
This is always a tough decision to make. Many experts are saying that the rates will probably drop again in the near future, however probably not as much as we have seen in the past few months. So what should you do ? One way is to look at your current interest rate, if you are still at a 6.0 -6.5 then maybe you will want to make your move quickly in case the rates rise even higher. Sure they could always drop a point or so , however this is a chance you will have to take in which you could lose your window of opportunity at any time.
Low interest rates are not the only thing to consider when looking to refinancing your mortgage. As tempting a low interest rate may seem, there are other considerations at stake. One is how much of a penalty will you incur if you refinanced at a lower rate? Penalties are usually calculated by the amount of months that are left in the current mortgage term, the amount still owing, the difference between past and current mortgage rates and other complicated equations that total into the factor. It could be expected that your penalty could amount to as much as $ 15,000- $20,000 or more depending on the length of term left and the size of the loan.
One advantage you have is that due to the recent rise in interest rates, many mortgage lenders have seen their business drop substantially in the last couple of weeks, so this could be used to your advantage when trying to negotiate with them. You may be pleasantly surprised at what some mortgage brokers will allow in regards to giving you the best deal possible in lieu of their competition if they view you as a good potential client. So bring some of their competitors offers to the table and start bargaining as this is still a good time to renegotiate your mortgage.
It is possible to refinance a mobile home in the same manner as a traditional home, as they are both based off of the same principals with just a few differences. The reasons why a person may opt for a mobile home refinancing loan is pretty much the same reason that a traditional home owner will refinance their mortgage rates. It is usually to take advantage of current refinance mortgage rates or to get some cash out of the equity to pay off other debts or financial obligations.
There are a few things to watch out for when refinancing a mobile home. There is a term known as LTV or ‘Loan to Value’ that is considered when the mobile home is being evaluated. This is basically an evaluation of the property value in relation to the amount of refinancing that is possible. In other words, the LTV is an allowable percentage that can be loaned based off the entire current value of the mobile home.
Mobile Home Refinance Loan
Lets say that you are looking for a mobile home refinancing loan and the value of your mobile residence is estimated at 40,000 and you only owe 30,000 left on the mortgage. Now let’s assume that the maximum percentage allowable from the lender (LTV) is at 90%, this means that it would be possible to refinance your mobile home at 90% of the amount already paid, which in this case would be $10,000. Therefore 90% of $ 10,000 would equal to $ 9,000 in your pocket which can be a substantial sum to help pay for other things.
When looking to refinance a mobile home, it is important to consider the costs and fees involved with getting a new loan. As with traditional mortgage refinancing, there are some important questions to consider such as how much money would it actually be possible to pocket after all of the finance charges and fees that are normally associated with refinancing?
Another thing to consider is unlike a traditional home, a mobile home will depreciate in value over time. In some states, it is only possible to get a cash out if it is a double wide structure built after 1976, or if it is a single wide home built after 1991. In most cases a mobile home refinancing is only possible if the structure was constructed after 1991 as of the time of this writing.
It is also important to remember that if you choose to sell your mobile home after refinancing, you will end up owing more than what you paid for it. Of course being able to refinance your mobile home when in time of need is a better option than facing a foreclosure and losing everything while also destroying your credit in the process. It would also be fair to mention that many traditional homes have also lost property value during the housing and mortgage crisis that has plagued the nation in recent times.
As in a traditional mortgage refinance, it is always in the consumer’s best interest to shop around as much as possible when looking for a refinance loan, as the finance charges can vary somewhat between lenders. Always go with a mortgage broker as opposed to approaching a bank for a loan as well. Banks do not have to disclose how they determine what rates you qualify for and often will mark them up. Brokers on the other hand , have to conform to federal mortgage disclosure laws that are designed to protect the consumer from falling prey to predatory lending tactics.
However one must still do as much due diligence as possible to secure the best interest rates available, regardless of consumer protection laws. Always get at least 3 quotes and present them to each lender you approach. Play them against each other to try to shave off as much interest and fees as possible before signing that loan contract.
There aren’t many people who would not like to be able to reduce their monthly mortgage payments and keep a few extra dollars for themselves. The question is how to determine whether to refinance at any given time or not ? How can you know for sure when is the best time to refinance, what indicators should you look at to determine this?
There are certain factors that you may look at such as the current trend in the mortgage market, whether we are seeing a rise or a fall in rates, and other things that may affect your payments such as mortgage insurance and your long term goals in regards to paying of your mortgage early. You may also want to refinance to consolidate other debts such as credit cards balances into a more manageable interest rate perhaps. So in effect you will need to consider the timing as much as the reasons to refinance your loan. These are all critical factors that need to be balanced out when considering your decision to refinance your mortgage.
When should i refinance?
Obviously it can be quite tempting to consider a refinance when interest rates have fallen to historically low rates as we are currently seeing in these recent times. However refinancing your mortgage rates can be quite costly due to all the fees involved. Refinancing makes sense if you plan on staying in your home for at least 7- 10 years or more. Remember that the fees you will pay to renegotiate your loan could end up costing you thousands of dollars, so you will want to at least recoup those costs over time. If you don’t plan on living in your home for more than 7 years after a refinance, the costs can surely out weigh the benefits, even if you sell at a profit.
On the other hand if you find your self with an adjustable rate mortgage (ARM) and you are looking at some tough financial times due to the rise in your monthly payments like so many other Americans these days, you might want to try to refinance into a fixed rate mortgage to save you from the uncertainties adjustable rate mortgages bring. Even with the fees involved that may also be worked into your payments, having the peace of mind knowing that your rates cannot increase unexpectedly and possibly force you into foreclosure maybe reason enough.
Another thing to consider is by how much can you reduce your current interest rates? The ideal situation would be if you could lower your interest by at least 2 points, so if your are currently at 6.75 % it would certainly make sense to take advantage of the extremely low rates that are available today. It is entirely possible as of the time of this article to refinance to a 4.5- 4.75% which in effect, if you choose to stay in your home for at least another 7 years, could save you potentially tens of thousands of dollars over the long run.
Interest rates are not the only thing that you should be looking at. One of the biggest mistakes consumers make is that they accept all the fees associated with mortgage refinancing. There are in many cases mortgage agreements that have hidden charges or mark ups that are disguised to look like valid costs and fees. So even if a homeowner manages to reduce the interest rates, they may fall victim to unscrupulous predatory lenders that get around the loopholes of the Federal disclosure laws and find themselves paying a half point or .75 point more than they had to. This may not seem like a lot of money , but when we are talking about a 350,000 mortgage, this could put many thousands of dollars into your lenders pockets that you could have used for your own needs. It is imperative that you do your home work and shop around as much as possible.
One last thing, you should always use a mortgage broker instead of your bank. The reason is there are many practices the banks don’t want you to know about in regards to the true interest rate you qualify for. In many cases a customer will unknowingly accept a marked up interest rate disguised as other legitimate fees in which the banks do not have to disclose to you. Banks are exempt from RESPA laws that govern the transparency of mortgage agreements, so they can get away with just about anything. Mortgage brokers on the other hand, are obligated to full disclosure and will have to justify to the consumer all the fees and costs involved. However having said this, it is important to shop around as much as possible to compare mortgage rates and get the best deal for your self.
We have seen a record decrease in the interest rates within the last few weeks of this article, and a good part of the reason for that is due to the federal government that is trying to stimulate the economy. They have lowered the federal lending rate from bank to bank down to almost 0%. So in effect, banks are borrowing money from the federal reserve between 0 and 1% and in return are passing on those savings to their customers.
So whether you are thinking about purchasing a home as a first time home buyer, or if you already own a home and you are thinking about refinancing it would be a good idea to not only think about lowering your interest rates, but to look into shortening the mortgage term to even further increase your savings over the long run. Either way now is the time to take advantage of the low fixed rates that are now available, as these are the lowest we have seen in the last 50 years or so.
Best Low Fixed Mortgage Rates
So how do you know when is the best time to refinance? Should you go for it now , or wait to see if the rates will drop even further ?
Well there is a whole plethora of information and data that affects our interest rates which makes it very difficult to predict. Part of how it works is based on what the federal government is lending their money to banks at, also another thing that affects the rates on a daily basis is the stock market. If the stock market is actually doing poorly, it actually helps promote better rates for us. It is very difficult to determine how the stock market is going to do an a daily basis, because it is affected by daily economic reports and world events. Therefore it makes it equally difficult to predict what the short term or long term interest rates are going to do. There are many economists that specialize in trying to predict the stock market and interest rates for banks and for the federal government , however it is definitely and inexact science.
So in the end we have to see how the market is doing on a day to day and case by case basis and just follow along in each industry on an individual basis and react in the best possible.
If you are considering refinancing your home or looking to purchase, this would probably be the best time to do so, because even if you refinanced today, and tomorrow the interest rates dropped a little further, you still stand a great chance of getting a really good deal. If you wait too long you stand a chance of losing this opportunity because eventually, as the demand for refinancing and mortgage increases, so will we see an increase with the interest rates as well.
Advantages and Disadvantages of Mortgage Refinancing
In this article we are going to talk about what every bank and mortgage company doesn’t want you to know. They don’t want you to know that every single mortgage loan is marked up by as much as 3 points by the loan originator. now is a good time to cover a bit of terminology,because you can’t get far with refinancing your mortgage with out coming across the term “points”.
A point is simply 1% of your loan amount and they come in several varieties. There are the origination point that you pay to the mortgage company or broker for their part in setting up your loan, and you have the discount points you pay in exchange for a lower interest rate or more favorable loan terms. points can also be paid to your mortgage lender or broker as a bonus for over charging you and that’s what we are going to discuss in this article.
Now these bonus points we are talking about are paid to your mortgage company or broker by the wholesale lender. So if the wholesale lender is paying the points instead of you, why should you be concerned ?
Advantages and Disadvantages of Mortgage Loan
This money the wholesale lender pays is a reward for your mortgage company over charging you. You are already paying origination fees for this company’s services often in excess of a point and a half, and this is more than ample compensation for the amount work that they do. By marking up your mortgage interest rates to line their pockets, you’ll be paying thousands of dollars more for your mortgage financing just in the early years of your loan.
Here’s how it works. For every .25% your mortgage company marks up the interest rate, your whole sale lender pays them a bonus of 1 point, of course they will never tell you that they are doing this, and in the case of a mortgage company or broker, their markup is very deep in their disclosures.
Banks on the other hand, don’t have to tell anyone what they are doing because they are exempt from RESPA laws. Now the extra interest on your loan makes it significantly more valuable on the secondary market because lenders receive mosts of the interest up front. Mortgage loans are front loaded with interest, meaning you pay most of the finance charges in the early years of the loan.
Let’s take an example of how this works: Suppose you are going to refinance your mortgage for ex. $ 200,000, and the mortgage company says that you are going to pay 1 point for the origination fee. Well as you know 1 point is 1% of your total loan amount, and in this case it would be $ 2000.00. Then the mortgage representative tells you that you qualify for a 6.75% interest rate, which you think is reasonable, so you agree to the terms and take out the loan. However, what the mortgage company is not telling you is that you actually qualified for a 6.0 % interest rate, but they marked it up to 6.75 %. Because they overcharged you and you agreed to the terms, the mortgage company receives 3 points.
Remember they get 1 point for each 0.25% that they mark you up, which now comes to a total of $ 6,000.00 as a bonus for overcharging you.
Lets break this down.. The mortgage company gets $ 8,000.00 ( $2000.00 origination fee plus $ 6000.00 bonus from the loan wholesaler) for originating your loan. In the end you pretty much get screwed because you agreed to pay 0.75% more than you needed to. That 0.75% amounts to thousand of dollars in unnecessary mortgage interest, and that’s just in the first years of your loan.
So now when I say these people are just like used car salesmen, you’ve got the numbers to show it and you understand how this scam works.
Now this unnecessary markup of your mortgage actually has a name. When a markup is charged by a mortgage company or a broker, its called a “Yield Spread Premium”. When your mortgage is marked up by a bank or broker bank it’s called a ” Service Release Premium”
We have already talked about why you shouldn’t take a mortgage loan from your bank, but what is a “Broker Bank” ? Broker banks are simply banks masquerading as mortgage brokers. They do this to exploit the loopholes in the disclosure laws as regular banks do , and prey on homeowners who just don’t know any better.
Broker banks are nearly indistinguishable from any mortgage broker, both in the offline world and on the Internet. you should never refinance your mortgage with a broker bank for the same reason you should never take out a mortgage loan form your bank. One example of a broker bank operating on the Internet that you need to avoid is ELoan.com.
So how can you tell if your mortgage broker is really a broker or a broker bank ? Ask them if they close on the mortgage loan in their own name. If the tell you no, then you know that they close in the name of the wholesale lender therefore you have found a genuine mortgage broker. Eloan.com for instance closes in their own name and therefore as a broker bank, is exempt for all disclosure laws that protect you from abusive lending practices. So never refinance your mortgage with Eloan.com.
However in general, mortgage companies have different ways of disguising the markups of your mortgage rates. Sometimes they will call it “Overage ” , ” Broker Rebate”, ” Lender Paid Fees ” or ” Lender Paid Compensation”. All these terms are rally just a slick marketing ploy to divert your attention away from what they are actually doing with your mortgage interest rates.
In the next article we will talk about what you can do to avoid paying these mark ups.
A short refinance is very similar to the short sale. In essence what happens is that you are re paying your lender on the mortgage of your home less than the amount you owe. This may sound strange, but the reason a lender will accept this, is if in the event you can no longer pay your monthly payments and are facing a foreclosure, your lender will have to take the house back and try to resell it at a probable loss. The bottom line is that your lender and the banks don’t want to have the responsibility of dealing with a foreclosed property, as they are not in the real estate business and of course they stand to lose a substantial amount of money on the property.
For example if you have a loan of $ 150,000 on your house and you are currently with ‘New Century’( this is one of the sub prime lenders that went under due to the adjustable rate mortgages that went up and had too many client who could not afford it, ) and lets say you are trying to find a solution because your house is only worth $100,000 due to property devaluation. The basic idea of a short refinance is that you are going to get a loan of $100,000 or less to pay off the current mortgage. So you would try to negotiate a deal with your current lender ( New Century) to allow that to take place, and then find new financing from a new source. For the example of this article we will say that your new lender is going to be Chase.
foreclosure consequences, short sale vs short refinance
So that is the idea of a short refinance, we are negotiating down the principal similar to a short sale, so this can give a better idea of the similarities and the differences between the two of them. So for a short sale, someone may owe a $150,000 but the house is only worth $100,000 and they can only get a buyer to come in at $90,000. After all the closing costs are paid the original home owner may only walk away with say, $ 82,000 for example.
So basically a short refinance is a short sale with a twist and that is you have to convince your lender that you will refinance the house and stay instead of selling it for less and offer the lender less than what it is worth. That is kind of a hurdle that the bank lenders have to deal with, if they don’t want to lose on a foreclosure or a short sale. This way the home owner gets to stay in the home and shave off of the mortgage owed. In effect this may sound like a strange concept, yet the alternatives in this dire market for the banks is basically the same, they will be facing a loss and have to deal with the responsibility of selling your home if a foreclosure arises or, will have to take a loss on the short sale either way.
The second twist is that you will have to get new money coming into the transaction. You will have to be able to qualify for the new refinancing or you will not be able to achieve this type of transaction. The problem is if you have been missing payments on your current mortgage, this will affect your credit and will make it very difficult to get another lender to agree to financing your home. So even if you are working with a specialist who can help negotiate a good rate , if they can’t get the financing they need to close the deal, all your hopes will be gone.
So what are you going to be needing to factor in considering your new financing ?
Most likely you new financing is going to be coming from a government backed home refinancing or loan modification program. There is the FHA foreclosure prevention program that will help those in financial trouble. There are 2 stipulations to this program, in essence the program will help those who are facing financial hardships with a foreseeable foreclosure looming in the near future, who are current on their payments. So those who are in trouble but have not fell behind on their payments will qualify. For those who are behind on their mortgage payments, they will only qualify if they fell behind on their payments due to an increase in their rates because they were locked in with a adjustable rate mortgage in which the rates climbed to a point where they could no longer afford to keep up with the payments.
There is also the new program integrated by president Obama, The Making Home Affordable Plan. This program will offer either a refinancing for those who are still current on their mortgage payments who have fell into financial hardships, or help those who have fell behind their payments get a loan modification to prevent foreclosure. There are also a few stipulations to the program. To qualify, the loan must be financed by either Freddy Mac or Fannie Mae, the loan must be under $ 775,000, the modification is only for the principal residence, and the amount due on the first mortgage is not more than 105% of the current value of the home.
So in essence it is possible to get a short refinance and stay in your home as long as you remain diligent, do your research and talk with your current lender for options.
If you are having difficulties making your mortgage payments, don’t wait until its too late. Foreclosure is not fun, you don’t want it and believe it or not neither do lenders.
There are alternatives to getting your home foreclosed, for example you can try to get a forbearance from the lender where in you can ask for a temporary suspension or reduction of your monthly mortgage payment. You could also sell your home and move into a less expensive apartment, you could refinance your loan, or you can do what is called a short sale if necessary.
Here is an explanation of what the short sale is all about. When the supply of money was plentiful, and credit was easier to get, lenders over extended by allowing home buyers to borrow more money than they could comfortably afford to pay back.
Foreclosure consequences
The keyword here is comfortably. Lenders do not knowingly lend money to undeserving individuals, however, the amount of loans they extended to home buyers left small room for homeowners to manuever around when their financial situation changed. This resulted in financial difficulties, when a significant change in the overall economic situation occured.
An example of this is if you obtain an adjustable rate mortgage and subsequently interest rates go sky high leaving you with payments more than you can afford. Assuming that you find yourself in this situation, you may want to sell your home to get yourself out of this financial situation, because your income can no longer keep up with the higher mortgage payments.
However in today’s market in can take a considerable amount of time to sell your home in which may be longer than the time you have to bail yourself out. There fore you may be forced to sell your home at a lower price that what you still owe on it. In this case we have what we call a short sale. This is where the approval of the lender would be required to consummate the sale and the transfer of the title of the property.
This is where you can get help from an associate broker. They can help you work through the loops of handling a short sale disposition of your home if other options fail. An associate broker is not in the business of buying homes, however many will not charge you a fee for the assistance that you will receive that goes beyond just selling your home. An associate broker will only charge you a commission when they have sold your home, much in the same manner as a traditional sale of real estate.
The main difference is that an associate broker will have the expertise in dealing with short sales.
So if you find yourself facing a possible foreclosure and have exhausted all other means of saving your home, it would be advisable to find a local associate broker who can assist you in selling your home if it means preventing a foreclosure.
Paying off your mortgage early is something that is certainly not encouraged by the banks, because obviously the longer you pay, the more money they make from you. However there is definitely a huge benefit if you are able to pay your mortgage off early.
Once you have a home that you know that you are going to stay in the rest of your life, it is recommended that you make it your number 1 priority to pay it off as early as possible. In most cases the largest monthly expense that you have is most likely going to be your mortgage. For example, lets say that you have a $200,000 mortgage at a 30year fixed rate and your paying approximately, $1,200 monthly, how much money do you need in a 401k plan to generate $1,200 monthly after taxes ? Think about it, $ 1,200 a month mortgage payment comes out to $14,000 a year, which means in the end you’ll need approximately $400,000.00 in a 401K plan at 5% interest that is generating $ 20,000 a year that you’ll pay taxes on, to pay off your mortgage.
Now you can take your money and put it in investments only if they pay off, which can be a risky venture. However here we are in the year 2009 and many of us have put our money in investments just to watch the stock market drop, and then what do you do ? It is far too risky to invest in the stock market in hopes of using your profits to pay off your mortgage.
Suzie Orman Mortgage Advice
The issue is that most people only keep their home for 7 years and of course the banks know this. That’s why they will charge all of your interest up front in the first few years. So image in the case of a $200,000 thirty year mortgage that you’ve been paying off for the last 20 years, up to this point you will still owe approx $108,000.
So the question is how do we pay off our mortgage early then ?
One of the most common ways is to increase your monthly payments. For example, If you had a $ 1,200 monthly mortgage payment and that was at a 30 year fixed , if you could possibly add another $100.00 a month to your payments , in effect you could reduce your mortgage by 5 years down to 25 years instead of 30 years.
So imagine if you just increased your monthly payments by $150.00 or $ 200.00. that would significantly reduce the term of h mortgage saving your potentially tens of thousands of dollars that could be put towards retirement or a college fund.
Now you may be saying that’s easy to say , but its another reality to actually achieve that. However, in many cases you would be surprised to see that if you really made an effort, you could actually find the extra money just by re prioritizing how you spend your extra cash. Another thing to note is that you may be able to put more one month over another, but as long as you try to increase your payments as much ass possible, you will be able to reduce the over all cost coming out of your pocket over the years of the mortgage.
It is highly advisable to keep track of all your extra payments to the because the banks may not necessarily keep track for you.
The obvious benefit to paying of your mortgage early is that when you retire, you won’t have any monthly payments to make so there will be more cash in hand. Plus you will not need as much money in your 401k plan because that money was used to pay off the mortgage early.
Another less obvious advantage is that once you reach 62 yrs old and if your mortgage is paid off, then you could always get a reverse mortgage if you wanted to get some extra money for other things.
So in the end it is possible to pay off your mortgage early if you want to make the commitment The benefits of having financial freedom in our later years is something that we will appreciate as opposed to being financially strapped and still having to work to make ends meet. Nobody wants to find themselves in that situation, so now is time to think about how to find ways to pay off that mortgage as early as possible.
Many American home owners are facing devaluating property values due to the housing crisis that has affected millions of people across the nation. To add to the crisis, many households are faced with the event of having one of the two income earners lose their jobs that is adding to the financial hardships of many Americans as well.
In lieu of the financial trouble this nation is facing, more and more home owners are finding them selves in serious financial trouble where they are not able to keep up with the mortgage payments anymore and are falling towards foreclosure.
In the event of this, more and more people are looking for ways to refinance their home while in foreclosure to try to help keep their homes.
mortgage assistance
There are basically 2 ways you can go about fixing the issue. You can go back to the bank and ask for a new loan, or more commonly you will try to get a loan modification. Due to the falling property values, many are left with homes that are now worth less that what is actually owed on the mortgage, creating an even more dire circumstance for refinancing or loan modification.
However there is hope. Fortunately those who find themselves in that situation may still receive government assistance.
The Making Home Affordable Plan is a program that has been set by the Obama administration to help homeowners facing foreclosure. The way the plan works is that if you are still working, yet however you foresee a increase in payments due to a reset that is coming in the near future, it will be possible to refinance your property and home up to one hundred and five percent of the value of the property.
The only thing is that in order to qualify, your loan must be backed by either Fanny Mae, or Freddie Mac. It is possible however to get a loan modification or refinancing if you don’t have a loan backed by these two institutions, the best thing to do is contact your existing lender and see what option they may have available to you.
For those who do qualify, there are 2 basic plans within the program, you can either refinance, or you can get a loan modification.
The refinance is for those who are not necessarily in financial trouble yet, but have been faced with situations that may very well cause financial hardship in the future.
The loan modification part is for those who are already in foreclosure and are at serious risk of losing their homes. Some of the criteria in order to qualify, is that you can only modify or refinance your principal residence. You will not be able to refinance a secondary home such as summer cottage, or refinance a revenue property.
Another thing is that you home must not be a jumbo mortgage, that is any mortgage loan that is over $729,750 , if this is the case you will not be qualified for the plan.
These are just a few general areas that are touched upon in regards to the plan…Stay tuned as I will elaborate more on the Making Home Affordable Plan in the next coming articles.
If you have a home loan, are about to get a home loan, or if your are considering a refinance, then this article will introduce you to
some financial strategies, that can dramatically change your financial future.
This is to help you learn about insider industry strategies and secrets that the banks don’t want you to know about. By keeping you in the dark and allowing you to cling to flawed financial concepts, is big money for the banks.
Now here is an important financial question for you, your financial future is riding on your answer. If what you thought to be true about a specific financial strategy wasn’t true after all, when would you want to know ? Now or later ? We’ll assume that it is now.
mortgage application
The strategy that we are talking about is how we view and treat our home loans. You may also want to ask yourself ‘who taught you everything you need to know and understand about the most effective and efficient way to handle a home loan ? The sad reality is that the majority of Americans have a fatal misconception of how a home loan works, and how much of their hard earned money is actually given away to their lenders. Americans are so focused on interest rates and payments, that they fail to recognize that they are trapped in a mortgage cycle of debt.
How would you feel if you found out that the mortgage system is actually set up to keep you trapped in that mortgage cycle ? And that cycle reaps huge profits for the banks, and in doing so, your lender is literally stealing your financial future. Now that may seem like a harsh alligation, but it’s vital that you know just exactly how true it really is. By paying your home loan as agreed, or regularly refinancing, you are securing your banks financial future while denying you and your family potentially hundreds of thousands of dollars that could be going towards your financial nest egg.
It is imperative that you and your lender do not have the same goals. Whats good for you is paying your loan as inexpensively and rapidly as possible. What’s good for the lender is the exact opposite, they want to earn as much interst as possible for s long as possible.
However you have a choice as to whether you want to play their game or not.
Lets take a look a 1 misconception that many people have in regards to mortgages. This is in regards to the “Federal Truth in Lending Disclosure Statement.” Now if you have ever purchased a home you have certainly received one of these documents.
The first important thing to look at would be the amount financed.This is typically called the principal balance. Let’s assume that it is $ 350,000.. It is important to understand that if we just had that amount our selves, we could have gone and paid cash and not have to worry about any mortage payments. Understandably most of us don’t have that kind of money, so we go shopping around at banks and lenders to find our loan.
Lets’ assume the loan is $ 350,000 at 6.25 % . Now in order for the lender to give us that money, the borrower is going to have to agree to the finance charge and pay that back over the term of the mortgage, lets say it is for 30 years. In this case we would be looking at over $425,000 that the borrower would have to repay. In the end that comes out to over 120% of the original principal balance. However most of us just shrug that right off, because you might be thinking that you are not going to be living in that house long enough or may be you think that you will just refinance later on.
Well if you ever really want to own a home this will be the minimum that you will ever pay. Don’t tell people you bought a home for $ 350,000, tell them you bought a home for $775,000 because that’s going to be the total of all payments that you are going to have to make if you ever want to own a home. This is the minimum, if you got an interest only loan, or a 40 year mortgage you are never going to own your own home.
So it very important that you start taking a look at ways to reduce this interest charge. Stay tuned for part 2 on strategies on how to actually reduce your mortgage payments.
Generally mortgage companies will make their money from the fees they generate on the front end of the loan, such as points being paid to buy down the rate, under writing fees, document prep fees, and alot of other miscellaneous fees, also referred to as junk fees that all add up to some tidy profits for these mortgage companies. However the main basis from where they make their profit is from selling your loans on the open market.
How it works is that they will take a pool of approximately 30-40 mortgages loans that could total up to 2-3 million dollars, and then they will turn around and sell them on the secondary market. In other words they will pull them up and take them to Wall Street in where there are investment companies that will purchase those loans, because it can give them a nice residual income from the interest rates paid by the borrower.
mortgage broker
When an investment company does purchase a loan, general the mortgage company will make approximately 1-3 percent of the total value of the loan in what is called the service release premium. This is where they allow these investors to come in and purchase these loans and the mortgage companies get a pay to fee for that.
What the mortgage company does then is that they take the money that they have just been paid back on all of those loans plus a 1 to 3 percent profit and turn around and start the process again.
How do brokers make their money ?
Mortgage brokers get paid typically on the percentage of the loan amount. That percentage can vary anywhere from a 1/2 percent to as much as 2 percent, however, in general, a legitimate mortgage company will make anywhere between 1 point and a 1.25 percent. That would considered a decent percentage also know as parity pricing. If a broker has a relationship with a particular bank for example, the banks will usually pay the mortgage broker a point or point and a half to deliver a loan that is basically ready to close. This means it would have the appraisal covered, all the verification of borrowers income and assets would be done as well.
Many banks are willing to offer these percentage points to brokers because it can save the banks a lot of money by outsourcing the paperwork instead of paying a full time staff . This way they don’t have to pay a loan originator, nor pay for an appraiser. All the particulars that go into making a mortgage can get quite expensive and this saves the banks a lot of money in the end.
That is why it is important to shop around as much as possible when looking for a mortgage or refinance, becaue the rates will vary depending on who you choose to take tare of your mortgage or refinancing.
If you are considering applying for a loan modification, you will eventually find your self shopping for a lender that will meet your needs. This is one of the things that you must take your time and try to contact as many lenders as possible and not just settle for the first one just because you find it to be a time consuming process.
To help you with the process we have compiled a cooperation report list of the major lenders to better give you an idea on what to expect from some of these companies. This is a list obtained from a non for profit organization called HelpUmodify.org.
The list is broken down from the easiest to deal with, to the most difficult to deal with according to HelpUModify.org.
1.) CountryWide:———————Easy to work with , good results
2.) Chase:——————————-Easy to work with , good results
3.) EMC:———————————Easy to work with , good results
4.) AHMS:——————————-Easy to work with , good results
5.) Aurora Loan services———-Easy to work with , good results
6.) Wilshire Credit——————-Easy to work with , good results
7.) Wells Fargo————————Difficult to work with , expect delays
8.) GMAC——————————-Difficult to work with , expect delays
9.) Washington Mutual————Difficult to work with , expect delays
10.) Downey Savings-—————-Difficult to work with , expect delays
11.) World Savings/ Wachovia—-Difficult to work with , expect delays
12.) HSBC——————————–Difficult to work with , expect delays
13.) Fannie Mae/Freddie Mac—–90 days late to qualify
14.) Indie Mac/FDIC —————–60-90 days to qualify
loan modification program
Now one of the most common types of loan modifications is the Temporary Reduction this is a deal where the homeowner gets a a temporary reduction in interest rates from anywhere between a 1 to 5 year span in order to help them get back on their feet .
Another type of loan is known as a Forbearance Agreement. This is an agreement that rolls all of your past due payments, penalties and interest into your current loan agreement until all past due amounts are paid. However, this tends to result in increasing your monthly payments which is exactly what you don’t want. The main purpose of a loan modification is to help lower your monthly payments to avoid foreclosure, so this would obviously not be a good option.
Extension of loan terms: This is when a lender will extend the loan term, say from a 30 year, to a 45 year term for example. This will result in lower monthly payments since the principal and interest can now be spread over a longer period of time.
The most recent and probably the most effective refinancing or loan modification if you qualify, would be the new Making Home Affordable Plan in which if you have either a Fannie Mae, or Freddie Mac type of loan, you stand a very good chance at either being accepted for a mortgage refincance or loan modification.
If for whatever reasons your applications are denied, you still have some options. The first option is to continue as is, in hopes of more options later, or you can walk away from your home in which the foreclosure will hurt your credit, or you can get a ‘Deed in Lieu of Forecosure‘ which avoids the foreclosure process, but you are still giving up the home.
A foreclosure can be delayed for months or even years, however it is going to hurt your credit significantly, as they have changed the rules in when you can purchase a new home after foreclosure.
The last option would be the Short Sale. This is where you sell your home for less that what you owe on it. This will help preserve your credit, yet still requires negotiation with the lender to accept the offer of the short sale.
Obviously the last few options are less than favorable, as nobody wants to lose their homes. This is why it is extremely important that you move very quickly if you foresee any possible financial difficulties in the near future. Start to prepare your self now to prevent any unfortunate situations for the future.
An Important Guide to the Loan Modification Process.
The truth about loans modification is that you can get the same results as opposed to hiring a broker , but you will need a lot of tenacity, thick skin, patience, time and an education of the process. If you are not experienced as a professional negotiator, you may not want to do this yourself.
However the point is that you can do it yourself if you really want to. The banks do not charge you for this, however most companies use third party negotiators, because that can benefit from that extra pull, and that experience with working with the lenders. This is really why you would use a third party negotiator, however there are some big differences between the companies out there and this is what a part of this article will touch upon.
loan modification process
The first thing you need to understand about loan modifications, is that you will never qualify if your loan application is not done correctly. The application is the most important part of the process. The information that you provide will determine whether you are approved or declined based off of the information you provide in the initial application.
One of the first things you have to do is prove that you will be able to make your future payments in order to be approved. Lenders will only consider loan modifications if they think that it will avoid a foreclosure, as this is the sole purpose of a loan modification in the first place. Nobody wants to see you lose your home, yet you must be able to prove on paper your ability to make your payments.
Many times the lender will contact you directly if the application is approved. This is one of the main reasons why you should never pay upfront fees for a loan modification, because a lot of times the very first initial step, such as getting guidance through the application and submittig it correctly, can in many cases be sufficient to get a good loan modification result.
There are some good non-for profit organizations such as www.helpUmodify.org that can help you with the process with no upfront charges to put together your application and to get you to the point if you can see if you have any options. If you do get it on the first offer, then you can get away with almost no cost and relatively little effort on your part.
One thing to remember is that results are never guaranteed, every single lender is different. For example, If you ever hear a commercial, or an advertisement in where a loan modification company is stating that they guarantee results, beware, because that is totally false information, it is simply not the truth and you should stay away from them. There are no guaranteed results when applying for a loan modification.
Another thing to note is that most loan modification lenders will only allow 1 loan modification per 12 month period. If you had a particularly bad loan modification that is now hurting you or possibly an application that wasn’t submitted properly, then you could also contact a non for profit organization that helps people find solutions to prevent foreclosure. The main message here is that if you have already had a loan modification done in the past twelve months, you do not want to pay any upfront fees for another one, unless it is over the 12 month period.
One last thing is to beware of the many sub-prime predatory lenders out there, that modify loans just for the money. These are the same companies that wrote all of those bad loans in which has contributed to the housing crisis as we know it today. We are talking about the companies that have offered for example, the adjustables, the no income, and the 1 percent type of loans, and they are going through their data bases contacting all their clients who are now suffering and trying to get them to pay upfront fees to re negotiate their loans.
Remember don’t you ever, under any circumstances pay upfront fees for a loan modifiaction. If you are approached by such a lender, in most cases its the sub prime predatory companies that you will be dealing with. So stay away from these companies as they will hurt you more than help you.
Just when you think it couldn’t happen to you, your mortgage payments have become unmanageable. This is a situation that has affected countless American homeowners in the past year or so and has left many wondering what they can do about it if they can do anything at all. This is a crisis that many people feel is unbearable, yet if you or someone you know is facing a foreclosure, there is some good news, there is help and you do have a chance at saving from losing your home to the banks.
There are many options people have, yet one of the big problems is that most people are not aware that there are solutions out there that do exist to help with their crisis.
Many people may have tried to re-negotiate their terms with their mortgage brokers only to get refused because they do not understand the procedures involved and are up against professionals from the banks who do not have their client’s best interest in mind.
foreclosure prevention with a loan modification
However there is such a thing as attorney backed loan modification services that can help you get the results you need to help save your house. These are professionals who understand how financial institutions work and will mediate the loan modification process for you.
Some loan mediation companies will take thousands of people at time and act as one voice to influence the banks to negotiate loan modifications for those who are in need. Now as mentioned, it is possible to go at it alone with the banks , and it may even be possible to move ahead a little, however this can be a very time consuming process and the chances of a refusal is much higher .
However if you choose to use a loan modification agency that can push it with thousands of people at the same time using attorneys and professionals it will definitely give you an advantage over trying to do it yourself. There are in some cases where people have been able to achieve interest rates as low as 2.5 % and a fixed 30 year mortgage without the closing costs, no application, no appraisal, basically loan modifications done without the approval process.
If you were put into a mortgage unjust fully or have been subject to predatory lending,or you are just down on your mortgage, you have an opportunity to save your home, lessen your payments, and possibly put yourself in a better equity position by reducing the principal balance and waiving all the extra interest.
However if you realize that you are in trouble, it is vitally important to start the process early. You don’t want to wait until there is a serious problem, the way to beat a bad situation is to act quickly when you see that there is a good chance in the near future that you may start to experience financial issues.
You need to start thinking strategically about your finances, such as transferring all your credit cards to low interest rates account, or downgrading your car, losing luxury items that are taxing your finances and anything else that may contribute to the problem. The problem must not advance to the point of no return, that is being late on your monthly payments for month at a time. Remember, as much as there is help available, it is limited to how far a homeowner will get help.
There is another factor to consider , the “payment refusal trap” In many cases if you have fallen behind on your payments for more than 2-3 months the banks can refuse your payments. People think that if the banks refuse the payments, they can go an spend it on whatever they want. As this may sound absurd, there are have been many cases in which homeowners have been doing just that.
Obviously this is a recipe for disaster. If you find your self in a situation that the banks are refusing your payments, you must allocate that money to reinstate your mortgage. When you are trying to refinance your mortgage, the banks will ask for a good faith deposit as way to get some of the money owed to them back.
It is also important to do you home work and really pay close attention to the contract. Look over your existing mortgage agreement, if you need help you can hire an attourney or use a non profit organization such as Hope Now, Acorn for example, there many great resources for helping you to deal with your new mortgage loan modifications.
In conclusion there are many resources to help you if you are in financial trouble , however you must act quickly to take advantage of these services if you foresee the possibility of facing foreclosure.
Mortgage Refinancing with the New Making Home Affordable Plan
Recently the Obama administration has come out with what is known as the ‘Making Home Affordable Plan’ in which there is a Freddie Mac version and a Fannie Mae version of the plan available. If you happen to have a loan that is serviced by either Fannie Mae or Freddie Mac, then you may be eligible to refinance, even if the loan to value in your home has declined due to the housing crisis.
This is what this new plan is all about. In the event that your home has depreciated in value, and your first mortgage does not exceed 105% of the value of your home, you will be eligible to apply for a refinance through the new plan.
Where you can get your mortgage refinanced depends on who is currently servicing your loan. If it is a Freddie Mac serviced loan, then you will have to go back to your original servicer. If it is a Fanny Mae serviced loan, then you can go to any lender, however you may not know how your loan would be serviced. What you can do in this case is fill out the appropriate forms or go to your original servicer for more advice.
making home affordable plan loan modification
One of the largest servicers is Wells Fargo that primarily services Freddie Mac type of loans. If you want to do a little research on your own about these types of loans , you can do a search inquiry online under ” Freddie Mac Refinance Relief Mortgage” or for the Fannie Mae program you can search under ” DU Refi- Plus Program.” You will be be able to get a general idea on how these programs work, and of course it is advisable to contact a professional broker afterward if you are seriously considering moving ahead with a refinance. They will be able to look more closely at your situation, and determine if you qualify. Now if you have a sub-prime loan or a jumbo loan you will not be able to qualify for the program, this is just for Freddie Mac and Fannie Mae loans.
If you have an FHA loan or a VA loan, you will be able to qualify for a “stream line refinance” which is also very popular as there is no appraisal involved. So if you have made your payments on time over the last 12 months and your credit score is above 620, you will be able to qualify for a stream line refinance. Like the Fannie Mae program, with the stream line refinance, you will not be restricted to your original broker, you will be able to get your refinance serviced by any broker you choose.
One of the great advantages with these two plans is that the costs are very reasonable and are relatively concurrent with regular refinance fees involved with standard processes.
One thing to note, is that the rules are constantly changing and evolving every day, so it is important to stay abreast of whats happening in the mortgage refinance world if you want to get the most out of these programs to suit your personal situation.
Why You Should Refinance Your Mortgage Now Before its too Late.
Now may be the right time to jump off the sidelines and refinance your mortgage because mortgage rates at an all time low. They are so low that banks and mortgage lenders are swamped with people trying to refinance their homes.
Just as an example, recently, in early may 2009 , a fixed 30 year mortgage hit an all time record low of just 4.75 %. At the time of this article, the rate has since rebounded a little to 4.96% , however that is still a really great rate. Also a 15 year fixed rate is still even lower, currently going at 4.63 %, ( at the time of this article ), so with interest rates like that, it is certainly something to consider taking advantage of.
Recently, there have been many cases where homeowners have been able to reduce their rates from approx. 6.5 % to 4.90% which is almost a 2 point spread. A 2% reduction in interest rates can translate into a substantial amount of savings by lowering some monthly payments by hundreds of dollars depending on the size of the loan.
low interest rate fixed mortgage
Another reason to refinance now is that like every good thing, it will come to an end. The predictions are that the rates will start to increase by the summer time. One of the main reasons this may happen is because the current demand for refinancing will eventually drive up the rates once again and those who are considering refinancing but choose to wait , may end up regretting their decision not to pounce on the opportunity when they had the chance.
Mortgage companies are sending the message that there is no real reason NOT to refinance even if you don;t have alot of equity built in your home. The reason is that president Obama has created what is called the ” Make Your Home Affordable” plan. What this does, is that this allows homeowners whose properties have lost value due to the housing crises, to still take advantage of the low interest rates that are currently available.
The plan in a nutshell is designed to offer incentives to mortgage lenders that are willing to help homeowners renegotiate their loans even thoough they have low or no equity. Mortgage companies have seen their businesses triple in the past few months are currently having a hard time keeping up with the demand.
Although refinancing may offer savings in the long run, there are considerable costs involved with refinancing a home, so it is always best to consult your current mortgage broker to find out if refinancing would be beneficial for your particular situation.
Also due to the fact that so many people are refinancing, some of the major banks have not been dropping their rates fast enough, simply because they cannot keep up with demand. So if your are currently holding a 6.0 % percentage rate and have more than 15 years left on your mortgage, this may be the best time to take advantage of these all time low interest rates.
