Home loan

The decision to refinance mortgage loans is a large one. There is a lot of work to do to prepare: You need to organize your finances, do stacks of paperwork, and have meeting after meeting with your mortgage agent, and at the end, you must pay a four figure bill. You need to know up front, not halfway through the process, if the time is not right for you to refinance mortgage loans or if you need to choose a different lender. When you consider a refinance, here are a few things to think about:

* Mortgage interest rates are rising. They reached historic lows during the first half of 2009, but starting in July, they appear to be making a slow, wavering recovery. Interest rates are unlikely to dip any farther and are likely to keep going up, so if you want a low interest mortgage, now is the time to act.

* Conditions are perfect for fixed rate mortgages. Although fixed rate mortgages typically have interest rates a little higher than comparable variable rate loans, the extra percentage points are worth it for the chance to lock in the prevailing low rates.

* Don’t wait for 2%; 1% may be enough. The classic wisdom is that interest rates need to be at least 2% below the interest rate for your current mortgage to make a refinance worthwhile. However, some experts now think lowering your interest by 1% may be a good enough reason to refinance. Use a mortgage calculator to work out whether you would save if you refinance mortgages at the going interest rate, even if the rate is less than 2% under your current rate.

* Be on the lookout for unscrupulous lender. The credit crunch has increased the number of borrowers who are desperate for any mortgage they can get, and their desperation has called out lenders who target them with predatory loans. Refuse any mortgage whose fees total more than 1% of the amount of the loan, or which has a yield spread premium. Also avoid lenders who use high pressure business tactics and aggressive advertising, or who tell you that although the loan they have offered you has a high interest rate, you can offset it by “flipping” or refinancing the property. When you refinance mortgages through predatory lenders, your mortgage is guaranteed to be expensive, hard to escape, and a drain on your finances for years to come.

Right now is an ideal time to refinance mortgage loans. Rates are about as low as they can go and are going to rise in the near future, and legitimate lenders are eager to lend to creditors with good credit ratings. If you have high interest loans from the boom of the last several years, now is a perfect time to refinance mortgage loans and lower your bills.

Before purchasing a home, most prospective home buyers need to make sure they are eligible for a home loan. If you comprehend and are prepared for the home purchasing procedure, in particular qualifying for a home loan, it will make the entire process much less trouble.

A couple of things that banks look at when determining loan eligibility are your financial ability to pay back the loan, and how eager you are to do so.

Means For Loan Repayment

Being able to pay off a home loan is the most important factor. A lender will look first at your current job and employment history. This will help the lender determine how secure you are financially. Factors such as length of employment at a particular place, or how long you have worked in one field are good indicators that you are financially stable and will have consistent income in the future.

Also, a bank or lender may look at your net income and see how much debt you have incurred previously. If you are in debt prior to the acquisition of a home loan, the lenders or banks must be certain that you make enough money to pay for both your outstanding debts as well as the home loan. If the lender determines that the existing debt (prior to the home loan) is too high, you may still qualify for a smaller home loan. Therefore, if you really would like a particular house and do not have extra capital for a less expensive loan, you should pay off as much of previous debts as you can before you apply for the home loan.

Agreement to Repay

Your ambition to repay is another big issue in procuring a home loan. Your credit report is one way that lenders can ascertain the likelihood you will pay your loans back on schedule. Your credit report tells lenders if you have paid past debts in a fair and timely fashion. If you have always paid loan installments on time and in the sum requested, you will be a more attractive borrower.If you have paid loan payments in full and on time, you have a better chance of getting a loan from lenders. Also, lenders will look at what you are buying the property for. Whether you are using the loan in order to purchase your primary residence or an investment property makes a difference, because home loans on a primary residence have a higher likelihood of being paid off.

Don’t be surprised if lenders will ask for a detailed financial history when deciding if you qualify or not. a W2 form, tax return, portfolios and credit reports could all be included, as well as additional items. If you are able to give the lender all of this financial data and they can verify its accuracy, your ability to qualify for a home loan will increase.

A homeowner would be wise to consider a refinance of his mortgage when interest rates drop. People who do not want to decrease their monthly mortgage payment when given the chance are few and far between. You must do your homework beforehand, however, if you decide to refinance your mortgage.

First, determine your real reason for considering a refinance of your mortgage. Homeowners typically refinance their mortgage loans either to decrease their monthly mortgage payments by extending their loan terms or to lock in a lower interest rate. Others will refinance their mortgages in order to consolidate debt. Why carry two mortgage loans (a first mortgage loan and a home equity loan) with different terms and different interest rates when you can combine them into one. Another popular reason to refinance a mortgage is to replace an adjustable rate mortgage (ARM) with one carrying a fixed interest rate. ARM interest rates are attractively low in the beginning but have the potential to rise to unaffordable levels during the life of the loan. Fixed rate mortgages provide more security.

You also need to examine your future housing plans before you decide to refinance your mortgage. It will take several months to realize the savings from that lower interest rate as lenders typically charge certain closing costs that will take months to recoup as savings. With that in mind, it does not make much sense to refinance your mortgage if you intend to sell your property within a year or two. If you intend to remain in your home for the long haul, then refinance of your mortgage does make financial sense. A lower interest rate or a longer loan term will lower your monthly mortgage payment to a more comfortable level.

Regardless of your intentions, make sure that your credit record is in good shape before taking steps to refinance your mortgage. A low credit score coupled with high credit card balances will definitely raise a red flag to potential lenders. However, many people choose to refinance their mortgage with one that exceeds the outstanding principal balance of their current loan, for the purpose of paying off their outstanding credit card debt. The upside to this plan is that any interest you would be paying to a credit card company is converted to tax deductible mortgage interest. Even if you intend to pay off your outstanding consumer loan balances with a refinance of your mortgage, you still should not be careless with your credit record. A mortgage company could interpret your behavior as indicative of irresponsibility and decline to take the risk of lending money to you.

Many homeowners employ mortgage refinancing as a strategy for lowering the amount of their monthly expenses. If you are considering joining their ranks, there are a few things to keep in mind before taking the plunge.

First and foremost, if you are serious about mortgage refinancing, make sure that your credit record is as spotless as possible. High outstanding credit card or consumer loan balances coupled with a bad credit history spell high risk and will discourage lenders from working with you. Even though many people consider mortgage refinancing as a way to pay off their credit card or consumer loan debt, maintaining several cards and loans with high balances raises a red flag. You also need to determine your future housing plans. It does not make good financial sense to commit to mortgage refinancing if you intend to sell your current home within the next few years. It takes a few years to begin realizing any true savings from mortgage refinancing, as your early savings from lower monthly payments are actually repaying you for any closing costs associated with your loan. However, if you plan to stay in your current home for the long haul, then mortgage refinancing does make good sense.

You can approach mortgage refinancing in a few ways. You could use mortgage refinancing to consolidate two mortgages into one to save money on multiple mortgage payments or to refinance your current loan with one bearing a lower interest rate, longer repayment term and higher principal balance than that of your current mortgage. Any excess funds resulting from a mortgage refinancing can go toward home improvements or paying down debt. The mortgage interest is tax deductible, whereas interest on home improvement loans or credit card debt is not.

Keep in mind that, regardless of your intention for mortgage refinancing, the loan process is the same as it was when you were buying your home for the first time. The same upfront costs apply, and they will include credit check, loan qualification and rate lock in fees, fees for title update and review and title insurance premium, lender document preparation fees, discount points, prepaid interest, attorney fees for both the lender attorney and your attorney, and county clerk recording and filing fees. It will take you several months to repay yourself for these costs out of the savings realized by your mortgage refinancing.

The New Year brought with it a little financial relief for consumers. Interest rates for a fixed rate 30 year mortgage were the lowest in decades, well below 5 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.

Many real estate analysts have called the flurry of mortgage refinancing activity a “mini boom.” They claim the boom would be bigger, if it were not for decreases in home values and stricter lending standards. 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. A minimum of 700 is the credit score bar for many banks now.

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. If you are interested in mortgage refinancing, now is a good time to shop around. 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. The first step is to figure out how much you would save each month with the new interest rate by subtracting the new estimated monthly payment from the one you make now. Tally up the actual mortgage refinancing costs, such as an appraisal, lawyer and documentation fees and other closing costs. Divide your refinancing costs by your estimated monthly savings. This will give you your break even point, or how many months it will take before you actually start saving on your monthly payments. If you plan to own the house beyond when you break even, then mortgaging refinancing should be considered.

Now that interest rates are hitting record lows, applying for a home mortgage may be an excellent idea. If this is your first time buying a home, the different types of home mortgage on the market might be confusing. Here is a guide to the two most common types of home mortgage, fixed rate and adjustable rate mortgages.

In a fixed rate mortgage, the interest rate and monthly payment amount never change, regardless of changes in federally set interest rates. Whatever rate you pay at the start of the loan, that is the exact same rate you pay until the end of the loan. Lenders usually charge marginally higher interest rates for fixed rate home mortgages as security against times when interest rates rise. This slightly higher interest rate is a premium you pay for the security of a fixed rate.

On the other hand, the interest rate for adjustable rate mortgages rises and falls with the prime rate. When the prime rate is high, your mortgage interest rate increases; when the prime rate is low, your mortgage rate drops. Your monthly payments rise and fall accordingly. Because this kind of mortgage is less risky for banks, they set the interest rates for adjustable rate mortgages slightly lower than they do for fixed rate mortgages. They also offer a grace period, typically 36 months to seven years, during which your interest rate does not fluctuate and is locked at an appealingly low rate.

Which one is best for you? Do not immediately leap at the lower interest rates offered by adjustable rate mortgages. Consider how long you plan to keep your house and whether rates are likely to go any lower. If interest rates are at a record high when you buy your house, taking out an adjustable rate mortgage is a sensible idea, since your rate is likely to improve. Adjustable rate mortgages are also good for people who plan to resell their house during the introductory period. However, if you plan to keep your house for longer than the introductory period, and interest rates are low, a fixed rate mortgage may be the best choice because you can “lock in” the prevailing low interest rate.

Take into account not only your own finances, but the current economic climate, when deciding what kind of home mortgage is right for you. Both types of home mortgage loan are excellent ideas at the right time.

Right now is an excellent time to take out a first home mortgage. Homes are inexpensive and mortgage rates are hovering just above 5%. Here are some of the basic choices you’ll need to make to determine the kind of mortgage you’ll need:

* Variable vs. fixed interest rates: A variable interest rate rises and falls as the prevailing interest rates rise and fall, while fixed interest rates stay the same regardless and are based on the prevailing interest rates at the time the homeowner got the home mortgage. If you compare a variable rate home mortgage and a fixed rate home mortgage with identical terms that were written at the same time, the variable rate mortgage is likely to have a slightly lower interest rate. However, you are likely to find that the apparent savings of the variable rate loan are wiped out by interest rate fluctuations. As a broad rule, fixed rate loans are best when the prevailing rates are low, so you can keep the benefits of the low rate when rates rise. Variable rate loans are best when interest rates are high, because rates are likely to drop in the future and reduce theamount you pay in your mortgage. As of August 2009, fixed rate mortgages are available at extremely low interest rates, and are almost certainly your best option.

* Amortizing vs. non amortizing loans: Amortizing mortgages are designed with payment schedules that cover both the interest and part of the principal, and fully pay off the mortgage over the term of the loan. Non amortizing loans have a fee schedule that covers only the interest, or sometimes not even the entirety of the accrued interest. After a grace period (which may be most of the term of the loan), the size of the payments increase, and the person who took out the loan pays off the rest of the mortgage at a rapid pace or in a single “balloon” payment. Amortizing loans are the best choice for people who plan to keep their homes for a long time and want a home mortgage with no surprises. Non amortizing loans are the home mortgage of choice for people who plan to own their home for only a short period of time, then sell it off before the grace period ends and the monthly payments become more costly.

* Unethical vs. legitimate lenders: The economic crisis has brought unethical lenders out like slugs on the sidewalk after the rain. Look out for lenders who advertise aggressively, use advertising techniques like door to door selling, attempt the hard sell, or offer you a home mortgage with a high interest rate or a yield spread premium. These are the most common and most easily spotted (but by no means the only) warning signs that a lender is unethical. Legitimate lenders will be less eager to take your money, which makes it slightly harder but far safer to take out a home mortgage with them.

If you’re currently a renter, the low interest rates available for a home mortgage in June 2009 may tempt you to consider buying a house. You may even have done the math and discovered that the payments on your home mortgage would be less than your rent. But does that mean it’s truly time for you to start going to open houses? Consider these variables before you make a decision.

* Who is responsible for repairs and upkeep? If the roof of your rented apartment springs a leak, fixing it is the landlord’s responsibility. If your own house’s roof springs a leak, you are the one responsible for fixing it, and you may need to shell out tens of thousands of dollars to do the job right. Will you have extra money set aside for large repairs and necessary upkeep, or will your money be taken up with paying the home mortgage?

* Who pays the taxes? When you rent, your landlord pays the tax for you. However, when you own property yourself, you are the one shelling out for taxes. Property taxes can easily run into four figures per year, and even a simple repair like ripping out old carpets can raise the worth of your home and add thousands of dollars to your tax bill. Can you afford it?

* What will the utility bills be? Owning a house tends to raise your utility bills for two reasons. One, most people who move from an apartment to a house buy a house with more floor space than their previous apartment, and people who move from renting a house to owning a house may also upgrade the size of their living space. A larger house means higher heat and air conditioning bills. Two, in many areas, landlords are required to pay certain utilities for their tenants, but homeowners must pay the bills themselves. For example, Massachusetts landlords pay the sewer and water bills for their buildings. In practice, the money comes out of the rent and the tenants are charged slightly more to cover it, but this cost is invisible to tenants, so people who rent may forget to take these utility bills into account when they estimate how much they pay for utilities. Will you be able to cover the cost of a higher utility bill if you buy a house?

And, most importantly:

* Whom does your money benefit? When you pay rent, all of your rent money goes to the landlord. When you buy a house, the lender receives the cost of the accrued interest from the home mortgage, but the capital comes straight back to you in the shape of home equity. You may even make a tidy profit if your house gains in value.

If you can afford all the extra costs of buying a house, then taking a home mortgage and becoming a homeowner is a wise choice. However, make a full accounting of all the hidden costs first. A home mortgage calculator won’t tell you. Before you take advantage of the low interest rates, make absolutely sure you know the real cost of a home mortgage.

Is the time ripe to refinance? Mortgage interest rates in May 2009 are temptingly low, so you may think now is the idea time to refinance. But is it the right time for you?

The first clue that it is time to refinance mortgage loans is that interest rates have dropped at least two percentage points below what you are currently paying. This difference between interest rates is large enough that it is likely to make up for what you will need to pay in refinancing fees. However, do not jump to the assumption that your situation fits the formula. If you do not stay in the house long enough for the savings from the lower interest to equal the refinancing fees you paid, you will actually lose money from the refinance.

Lowering your monthly payment is another reason to refinance mortgage loans. If you are pinched financially, cutting the amount you pour into your mortgage each month can reduce your stress significantly. You can lower your mortgage payments by refinancing to a mortgage with a longer term, which means a higher total bill but a smaller monthly bill. Or, if you plan not to own your house for much longer, you can drop your monthly bills even lower by taking out a non amortizing loan. When you refinance mortgage loans with a non amortizing loan, you pay only the interest on the loan for a grace period of several years. When the grace period ends, you are responsible for paying the principal off on an accelerated schedule, or even in one lump sum. However, if you sell or refinance the house before the end of the grace period, you get the benefit of lower monthly payments, and repay the balance of the loan with the proceeds from selling or refinancing the house.

If your analysis of your financial situation tells you that right now is a good time to refinance, mortgage interest rates as of May 2009 are ideal. On the other hand, if your analysis suggests that you will not recoup your money, refinancing is a poor choice. In that case, wait to refinance; mortgage rates will dip again. Either way, rely upon your sense of your own financial situation, not outsiders’ opinions or articles in the paper, to decide when you should refinance.

If you have been considering a refinance of your house, now may be the time to act. Ironically, the debt crisis created by bad mortgages has created excellent opportunities for people who can prove they are capable of paying off their mortgages, and who have a higher interest rate on their current mortgages. You can benefit exceptionally well from a refinance if you bought property during the past couple of decades, when interest rates periodically soared.

Because the Fed has repeatedly slashed federal rates over the past several rates, mortgage interest rates are the lowest they have been in years. Mortgage rates tend to trend up or down when Federal rates rise or fall, although the two rates are not tied together.

When you consider whether a refinance is right for you, here are a few questions to take into account:

* Will any savings from a lower interest rate be offset, or surpassed, by the charges from refinancing fees? A refinance may bring with it a number of fees. If the difference between your previous interest rate and the new interest rate is small, you may discover that the money you spend on fees exceeds your potential savings.

* Similarly, will a longer loan term add enough extra interest payments to completely offset the savings you might have gotten through a lower interest refinance? Often, when people refinance, the bank offers them a mortgage with a longer term as well as lower interest rates, leading to attractively low monthly payments. However, because the interest has longer to accrue, the lifetime total of the loan may add up to even more money than the previous loan. Use a loan calculator to determine whether you are really saving money, and if you are not, either decide to pay more than the minimum each month, or do not refinance.

* Avoid variable rate mortgages when you refinance. Even though the variable rate mortgage’s monthly payments may be lower than the fixed, rates are so low right now that you are less likely to benefit from a rate drop after the introductory period is over.

* Do not wait for rates to drop lower before you refinance! Interest rates are reaching record lows already. Anyone who waits too long to refinance is likely to be caught refinancing as rates rise again. If rates do start rising, do not wait even longer in the hope that they will drop again. Grab a relatively low rate while you can. Refinance as soon as possible, and get a rate that is low enough to satisfy you, rather than wasting time holding out for an even lower rate that might never happen.

Even a weak economy has its bright side. If you weigh your options carefully, you can take advantage of the current economic situation, and refinance your house at considerable savings to you.