Refinance home loan

As the second week of February draws to a close, President Obama prepares to sign the $787 billion stimulus bill. The economy is suffering from the greatest slump since the Great Depression. A large part of the stimulus bill will be aimed specifically at the ailing housing market, which is blamed for much of the financial crisis that began last year. Although the details of that plan have yet to be released, many homeowners at risk of defaulting on their mortgage loans or going into foreclosure are anxiously awaiting any hopeful news.

President Obama is expected to make the details of the new housing plan public in Arizona in a week. There is, however, one thing that is expected to be included in the plan. Consumers purchasing a new home for the first time (whether they are paying cash or taking on mortgage loans) will receive an $8000 tax credit. A lot of financial experts think that the credit by itself will not incent enough potential home purchasers to buy now. A big hurdle for potential buyers currently is the more stringent standards lenders adopted for mortgage loans. To be offered loans, borrowers must now have better credit reports and scores than ever before. And requisite down payments are much higher than they were prior to the credit crisis. Buyers must have enough money for the required down payment on mortgage loans, regardless of a tax credit. Still, other economic experts think any incentive will give a boost to the real estate market. There will be some buyers who are eligible for mortgage loans who will decide that the combination of low interest rates, a tax credit and lower prices makes this a good time to buy. That is a step up from the current stagnation the housing sector has been in.

One of the things affecting the housing market the most is the increasing foreclosure rates on home loans. It is anticipated that the new plan will offer aid to those homeowners at risk of foreclosure. There is an expectation that banks may be required to lower the monthly payments on some mortgage loans to help those in danger of foreclosure continue to make their payments. Many banks are suspending foreclosures until next month. They want to know the specifics of the stimulus bill to understand what it may mean for consumers and them.

2009 has already handed consumers some good financial news, which is a welcome change in the current economy. As of the second week in January, the average interest rate on a 30 year fixed rate mortgage was at 4.89 percent. The drop in interest rates have encouraged many current homeowners to apply for mortgage refinancing. In fact, the number of people applying for mortgage refinancing was at the highest point in half a decade. Those homeowners are hoping to take advantage of the lower rates before they go up again.

There have been so many applications for mortgage refinancing that some analysts in the housing sector say that it is causing a tiny boom in real estate. It would be a larger one, they say, if new lending practices were not so tight and values were not so low. Some homeowners no longer have enough equity to qualify for mortgage refinancing, due to lower home values. Nearly half of the homes that were bought in the last 5 years in one county in California have dropped below what their owners bought them for. Other homeowners who may have been approved for mortgage refinancing just a year ago may not have a high enough credit score to qualify under the new lending practices. Some banks are now requiring a credit score of 700 or higher to be eligible for the low rate mortgages.

Since the government announced that it would buy a large number of mortgage backed securities, many expect that mortgage rates will continue to be low for the next quarter. It would be wise to get the ball rolling, if you are considering mortgage refinancing. Most financial advisers tell you that mortgage refinancing is a good decision if the rates are at least 1 percent below those of your original mortgage. It is, however, more important to look at your particular situation and determine if the cost and savings over the time you intend to own the mortgage makes sense. First, calculate what your monthly savings would be by comparing your current payment to the estimated payment under the new rate. Then add up all the costs of the mortgage refinancing. Take that total and divide by what you think you will save each month. This total (given in months) will tell you when you will make up the costs of the refinance and start seeing savings each month, also known as when you will break even. If your break even point is longer than the time you expect to own the property, then it may not make sense to undergo mortgage refinancing.

Interest rates for mortgages have dipped lower than what we have seen for quite some time. Additionally, there is talk that the Treasury Department is considering a push to decrease rates offered to those buying homes to below 5 percent. There is no talk about offering those same rates to current homeowners wishing to refinance, but rates for refinance should not trail far behind. Many analysts are hopeful that low rates will kick start the real estate market. Others feel that offering lower rates to prospective buyers may not provide the desired boost. Buyers are still unsure about jumping into the real estate market before it has hit the bottom. Marry that with increasing job loss and uneasiness about the current economy, and many buyers may not jump in spite of low rates.

Most of the news reports rally around the idea of getting potential buyers to start purchasing from the surplus of existing home inventory. There is not, however, much talk about the majority of homeowners in this country. Many consumers have mortgages in good standing and own equity in their properties. Those homeowners could benefit from lower interest rates, as many will want to stay in their homes and refinance. A refinance does not add to the already flooded inventory of unsold homes. Most people refinance to lower their monthly payments. If those homeowners have more money in their pockets, they are more likely to make upgrades and spend money on other items they may not have purchased with higher mortgage payments. Rates for refinance should be included in any government proposal to stimulate the real estate market. A government plan that offers extremely low rates to only buyers, however, would miss an opportunity to stimulate economic movement within the ranks of current homeowners. Those wishing to refinance are often those who have a good payment track record, good credit, and will otherwise help support this economy with solid spending habits.

Many homeowners wishing to refinance are not gambling on the government dropping rates any further. A report from the Mortgage Bankers Association indicated a 200 percent increase for refinance applications the last week of November. Many of those applications, however, are being denied. Lending standards have become more restrictive and home values have decreased, which has made it difficult for some consumers to refinance. If a consumer purchased a home at the height of the boom and then saw his house value decline, he may no longer have enough equity to be approved for the refinance. On the other hand, those who do have enough equity for a refinance, should consider locking in the low rates now. This may be a once in a lifetime opportunity.

If you have never done it, mortgage refinancing can seem complicated. But when you put it simply, the process is easy to understand. When you refinance your home, you are essentially replacing your current mortgage with a new mortgage. In doing so, you use proceeds (or some of them) from the new loan to pay off the balance of the existing mortgage. If the interest rate is lower than when you initially purchased your home, you may be able to lower your monthly payment. Plus, in some cases, mortgage refinancing also lets you “cash out” some of the equity you have built up in your home. This allows you to use the equity for improvements or other expenses without having to sell your home.

Here’s an example of how mortgage refinancing works: When Sarah purchased her home a year ago, she financed it with a 30-year fixed rate loan. At the time, she signed up to pay a 7.0% interest rate, but later this year, the rate fell to 6.5%. While a savings of 0.5% might not seem significant, refinancing at that rate would lower her payment by about $600 per year on the $150,000 loan.

Before you can decide if mortgage refinancing makes sense, you have to compare the savings to the costs of refinancing. In the example above, if you had to pay $3,000 (roughly 2% of the total loan) to refinance then it would take 5 years ($3000 / $600 = 5) to cover the cost of refinancing.
More Considerations

When you start to consider mortgage refinancing for your home, there are several important factors to keep in mind. Though interest rate seems like the most important aspect of mortgage refinancing, it is not the only thing that will affect your payment. If you are considering mortgage refinancing, consider the following:

1. The term of your mortgage. Oftentimes, refinancing your home implies extending the term of your mortgage. For example, if you have paid five years of a 25-year loan, you might need to be open to extending your total payments another five years if you select a new 30-year loan.

2. Your current credit rating. If your credit has deteriorated since you purchased your home, you may have trouble qualifying for a new mortgage at a better rate. The rules and guidelines for obtaining a mortgage are becoming more strict; without good credit, it’s more difficult to find a better rate, or qualify at all.

3. You future plans. For those that plan to stay in their homes for an extended period of time, mortgage refinancing can mean significant savings. If, however, you are considering selling your home within one or two years, you may actually lose money because of the closing costs and other fees required to refinance a mortgage. In many cases, it may take several years for the monthly savings to pay back the costs of refinancing.

The rate of foreclosures on home mortgage loans continued to go up last month. The Mortgage Bankers Association started tracking home mortgage foreclosure and delinquency data in the early 1970s and the current rate is higher than any time since then. Unemployment was at 8.1 percent in February. Home values continue to decrease in many areas of the country. Although the government recently unveiled a huge housing aid package, consumers appear to be reluctant to make any real estate purchases. President Obama has made it clear that he plans to help homeowners before they get in trouble and have to go into foreclosure.

There is a lot of chatter about responsible consumers having to bear the burden for borrowers who took on a bigger mortgage than they should have. The Obama plan, which designates $75 billion to help ease mortgage payments for troubled consumers, claims to help all homeowners in the long run. The argument for helping troubled homeowners is that home values will be driven down in neighborhoods that have many foreclosed properties. By allowing more people to stay in their homes, neighborhoods and communities can stay strong. Every tax dollar is helping all homeowners prevent their communities from falling apart.

Not just anyone will be eligible to modify a home mortgage under the housing stimulus plan. The home must be the principal residence of and owned by the applicant. If a home mortgage was obtained before 2009, it can be considered. The home owner must have experienced some event that led to financial loss, such as being laid off or a decrease in pay that will prevent him from making his payments. Finally, to be eligible for a home mortgage modification, a homeowner must demonstrate that his mortgage payments are over 31 percent of his income each month. This bill will not allow everyone to stay in their homes. If it is determined that a homeowner cannot meet the payments even if the home mortgage is adjusted, he will not be given the modification.

History will be the judge of whether this new housing aid package will give the housing sector relief from home mortgage foreclosure and delinquency rates. Those consumers who have been living within their means and have made sound financial decisions will, indeed, be giving tax dollars to help those that did not make such wise decisions. But many experts believe the consequences of not doing so would devastate an already battered staple of the economy.

Refinancing a mortgage can be financially beneficial if you understand how and when to do it. The economic rollercoaster ride of the past year has left many wondering if it is a good idea to refinance. Mortgage payments are becoming more difficult to pay for some who have experienced job loss or a significant decrease in their investment portfolios. A lot of consumers who bought their properties when real estate was at the peak are left holding the bag of decreased values now. Those who have adjustable rate mortgages are experiencing significant increases in their monthly payments, as their rates reset. A quick internet search yields a plethora of sites offering refinance mortgage tips and guides. Deciding what is best for your own budget can be a bit daunting.

Refinancing a mortgage is a very personal decision and requires that you know your financial plan and budget. The savings that can be gained each month on mortgage payments is a common reason people refinance. Mortgage refinancing done at the appropriate time can help your budget in the long run, but you need to factor in all the costs and benefits incurred during the time you anticipate owning the house. Your first step is to figure out how much you would save each month under the new interest rate. Then add up all the costs you think you will incur for the actual refinance (such as title preparation, lawyer costs, appraisal and filing costs.) Your third step is to take the anticipated total cost of the refinance and divide it by the expected monthly savings. That will let you know when your “break even” point is, or how long it will take for you to actually start saving as a result of the refinance. Mortgage refinancing should be considered, if you plan to own the property beyond the break even point of the refinance. Mortgage owners that currently have adjustable rate mortgages are smart to explore refinancing, in spite of break even point calculations. Obtaining a steady fixed rate mortgage in the current rocky economy often outweighs the costs of a refinance. Mortgage holders can also consolidate a higher interest loan or credit card debt with their refinance. Mortgage refinancing with a low fixed rate will usually tender lower interest rates than those of credit cards.

To determine the benefits of a refinance, mortgage owners need to confidently know what they can afford and what is best for their current and future budgets. Make sure to calculate the savings against the costs of the refinancing and the duration you expect to own the home. Make sure you are clear on the interest rates, terms and conditions of a new mortgage before you sign those papers.

Mortgage refinancing is a process that involves applying for a new loan in order to take the place of your current mortgage. There are several scenarios wherein mortgage refinancing is a good idea.

Most people apply for mortgage refinancing to pay lower interest rates, thus saving them money for the duration of the loan. Keep in mind, however, that there are usually lender fees and other costs associated with originating the new loan. If you do apply for this type of mortgage refinancing, make sure that the savings from refinancing will outweigh the costs of the transaction. It is also important to take into consideration the length of your stay in your home. Selling your home before you break even on the refinance will end up costing you more money than if you never refinanced your first mortgage.

Another situation wherein refinancing is a good idea is when the interest rate on an adjustable rate mortgage or ARM increases. If you anticipate an increase in your mortgage rates in the future, shifting to a fixed rate mortgage will allow you to avoid the higher interest rates later on. Conversely, if you anticipate a decrease in rates in the future, applying for a new adjustable rate mortgage may be a better idea.

Homeowners who find they are unable to make their current mortgage payments may opt for mortgage refinancing as a way to extend the term of the loan and thereby lower their monthly mortgage payments. Although this can help you get through a difficult financial period, you will end up paying more in interest over the course of the loan. In addition, if the interest rates on your new mortgage loan is higher, you could end up paying the loan off longer than you intend on staying on in the home.

When you make the decision to apply for mortgage refinancing it is important to understand how much you will save each month and what the costs of refinancing will be. To estimate whether or not it’s worth it to refinance, simply multiply your monthly savings by the number of months you plan to stay in you home. Then subtract the total costs and fees that you paid for the new loan. If you end up with a negative number, you will lose money on the refinancing. The longer you stay in your home, the more likely you are to break even or save money by refinancing your mortgage. Mortgage refinancing is still a far better option even if the rates on the new loan are only slightly lower than what you are paying now.

Are you in need of a home mortgage? How badly do you need a home mortgage? Some mortgage lenders hope you’ll need a mortgage very badly indeed, and when you’re backed into a bad spot, they’re exactly the kind of mortgage lender you don’t need. When you weigh which mortgage lender to pick, here are the top five danger signs of predatory lenders:

* Aggressive marketing. Legitimate home mortgage lenders do not need to seek out borrowers; borrowers come to them. Predatory mortgages, on the other hand, are what one expert called “loans seeking consumers.” Predatory lenders use hard sell tactics, junk mail campaigns, and telemarketing, and even more suspiciously, they market door to door. If a lender you are considering uses any of these tactics, cross them off your list.

* Unusually high interest rates. Predatory loans generally carry interest rates that are much higher than the market average. Some lenders convince borrowers to accept high interest rates by targeting borrowers with credit ratings poor enough that they are hard pressed to get a home mortgage from a legitimate lender. Other lenders prefer to target inexperienced borrowers who are unaware that they are paying too much for their mortgage. Predatory lenders often suggest dealing with the high interest rate by refinancing, or “flipping,” the home mortgage frequently.

* Bloated fees. While legitimate mortgage fees may feel like they pack a punch, they amount to 1% or less of the total mortgage amount. Bad mortgages frequently come with fees of 5% or more.

* Yield spread premiums. This official sounding piece of jargon is a euphemism for a kickback paid to the broker for finagling you into taking on a much higher interest rate than you would be qualified to get from a legitimate lender. A legitimate loan will never have a yield spread premium on any account. If you are offered a home mortgage with a yield spread premium, look elsewhere. Not only have you been offered a bad mortgage, but you have been told indirectly that you are qualified to get a much better interest rate.

* A penalty for prepayment. This is a charge for refinancing or paying off the mortgage early. While legitimate mortgages very rarely have a prepayment penalty with a short term tacked on, predatory lenders routinely discourage you from refinancing to a better lender with prepayment penalties for terms of three years or longer.

If any of these signs apply to a mortgage you are offered, reject the offer and find another lender. No matter how badly you need a home mortgage, you don’t need one as bad as the ones these lenders will sell you.

Not everyone stays with the same mortgage for the entire length of its term. Interest rates will most certainly change over the length of a 15, 20, or 30 year loan, and a homeowner would be wise to refinance his mortgage loan if rates drop. Refinancing can result in big savings on interest charges, but homeowners should be aware of the pros and cons before deciding whether to refinance a mortgage.

To be sure, there are some good benefits to be realized if you decide to refinance your mortgage. The most obvious is that, by paying off your current mortgage with one that has a lower interest rate, you will have lower monthly payments. Refinancing a fixed rate or an adjustable rate (ARM) loan one with the other can have a significant impact on your monthly mortgage obligation. Just remember that ARMs offer low initial interest rates that will change over time. Planning for this fluctuation can cause undue financial strain and it would be wise to seriously consider whether to refinance your mortgage with one that has a fixed rate. You can also build equity faster if you refinance your mortgage with a loan having a shorter term, as the shorter term translates to higher monthly payments that pay principal down faster. Shorter term loans also mean lower overall interest charges.

Savings will not be realized right away when you refinance your mortgage as you must still come up with the closing costs on your new mortgage loan. These costs may include application, origination, and appraisal fees, insurance premiums, title search fees and county clerk recording fees, and discount points paid upfront to secure a lower interest rate. These fees will eat up any initial savings unless your interest rate is at least one half a percentage point lower than your prior loan.

It is advisable to consider your long term plans before deciding to refinance your mortgage. You may not realize any savings if you plan to move within a few years. A refinance of your current mortgage makes financial sense only if you intend to remain in your home, as it may take several years to recover your closing costs. Check your credit score before deciding to refinance your mortgage. A low credit score and high debt to income ratio will have an adverse effect on your loan qualification chances. Lenders tightened up their lending practices as a result of the 2008 and 2009 financial crisis, and what may have slipped by a couple of years ago could disqualify you now.

2008 was not a good one for most homeowners in this country. Many who work in the real estate market are hopeful that 2009 will bring an upswing in their battered sector of the economy. They feel that potential home buyers will be encouraged to take on mortgage loans with the new low interest rates and help reduce the current glut of home inventory. But analysts outside the real estate sector do not agree that the new year will bring such rosy economic prospects. They foresee a deepening of the economic recession and a continued downturn in home values. Buyers can currently find some good deals on homes and mortgage loans, which could spur sales in some areas. The excess of inventory exacerbated by increasing foreclosures, however, will likely keep the housing market down. Making matters worse are the mortgage loans at adjustable interest rates that will reset soon. Many predict that will contribute to the already overburdened inventory of homes. Some consumers who would like to buy right now are finding that they are not eligible for mortgage loans like they once were. Lending standards have tightened significantly, which will exclude many buyers who would have qualified for mortgage loans a year or two ago.

Many people who currently own properties would like to lock in the low rates and refinance their mortgage loans. Applications for mortgage loans hit the highest level in five years last week. Over 75 percent of those were to refinance current mortgages. But many of those applicants were not approved. One mortgage lender in South Florida said that only about 5 of the 50 customers who called about refinancing recently qualified. Some homeowners that purchased in areas like South Florida that have experienced a decline in values are finding that they owe more on their mortgage loans than their homes are worth now. Banks will not approve homeowners who do not have enough equity. To be eligible for refinancing, a consumer must now have an excellent credit score, own at least 20 percent equity in the home and have a low percentage of debt. This is in stark contrast to the lending standards for mortgage loans of just a few years ago.

Many refer to the previous loose lending standards as the wild west. Those standards often required little or no down payments for mortgage loans and appeared to disregard the credit worthiness of many applicants. Although the new lending standards may be compounding the already suffering real estate market, they will offer a necessary correction for a credit market that appeared to be out of control. We will have to wait and see if the new year will offer a renewed confidence in the credit market, and ample encouragement for consumers to take on new mortgage loans to get the ailing real estate market going again.