Every where we look we see and read something about Refinance-Mortgage Loans or Refinance-Loans or Home Equity Loans and the like. There are a lot of people in trouble and needing relief either from having 2 mortgage loans, a first and a second or a interest rate so high that the payment is over and above what they can afford. Soooo, since I have been in the business for so long I thought I might give you some additional thoughts on these subjects and change what I have been writing about here on Infobarrel. What I tell you will definitely be the truth and the market as it has evolved during the last few years.
First let's talk about a straight 1st mortgage refinance, one loan. What are the pros and cons of refinance today or anyday for that matter:
- Can you lower your rate by at least 2%
- Do you have sufficient equity to refinance
- How long have you had your first mortgage loan
- Do you have the necessary closing cost to refinance to pay out of pocket
- Is you property value the same or more than when you purchased
These are just questions about what to think about prior to going to the Lender. This is not conclusive because you have to still qualify for the refinance credit wise. I will begin with #1. and go forward:
- It has long been determined that it is not a benefit to you financially if you cannot lower your interest rate by at least 2%. Why, 1% will not lower your payment signficantly.
- If you did not pay 10, 20% downpayment, your equity may be lower than you think and with the changes in terms and loan to value ratios if you only paid 5%, sufficient equity may be lacking.
- If you have only been in your home for 1 to 3 years, or refianced once already within the past few years, you have paid very little equity or should I say principal on the mortgage balance. Remember the interest is not counted as your equity. It is the portion of the loan payment that goes to principal.
- Yes, you can add in the closing cost on a refinance mortgage loan but it is going to make your principal balance go up and your payment will be with the closing cost included. You are definitely playing ball well if you can pay the closing cost out of pocket; then all you have is the unpaid principal balance that is reamortized over the new term of the loan.
- Are you in a subdivision where there are no foreclosures, deed in lieu or short sale properties? If you are not, you have a great chance of your property value being the same or "possibly"more. That is possibly because as you know property values have declined everywhere.
After considering the above you will have a pretty good idea if it is feasible for you to find a mortgage lender so that you can explore your options for a Refinance Mortgage Loan and one that will give you the best rate possible without all the unnecessary closing cost. A lot of Banks can give you a rate without an origination point or discount point, some do not but you can shop for the best rate and that means the two items I have listed. O origination O discount.
Anyone is always better off if they can afford a shorter term, meaning 15, 20, 25. More $'s go to the principal when you are paying a payment based on these mentioned terms and you are of course your equity is building much faster than on a 30 year loan. Yes, the payments are higher but it is still in your best interest if you can afford the little bit higher payment.
I realize that some people can't make the payments they now have and that is one reason they want to refinance. Okay, here is the deal if you have 2 mortgage loans; a first and a second. If you can qualify credit wise then you "might" be able to pay off your 1st and 2nd mortgage and make on loan if the following exist:
- You have been in your home long enough to have sufficient equity
- You do not live in an area where the property value have declined
- Can you pay the closing cost out of pocket
- Lower your rate on the 1st
- You may have mortgage Insurance if the loan to value is > 80% of the appraised value
The same criteria is involved here as in the refiance of 1 loan. You have to have enough equity to refinance and be within lender and investor guidelines for loan to value. If you have an 80% first mortgage an almost a 20% second mortgage, depending upon low long you have been in your property, you may have some hurdles to overcome. Why, your equity is going to be rather skimpy if you have had a HELOC (Home Equity Line of Credit) and you have not paid any of the principal balance yet.
The next thing is if you property is in a market of no foreclsores, you are in good shape, otherwise your value may have declined. The main emphasis is to make sure that you can lower your rate by 2 points on with loan. Watch the closing cost and shop for no origination or discount point. If you are a long term customer of your Bank, work on that relationship and see if you can get what you need there. You will have to remember that certain loan to value guidelines have changed and I do not think there is a refinance (regular) with no credit issues etc. that will give a 100% loan. If you refinance a 1stand 2nd, and your loan to value is over 80%, mortgage insurance will be added in your loan and you will have to have an escrow account if you do not already.
There are other guidelines out there for those having problems from Subprime mortgages. This articles is not about subprime loans. It is about what is known as Conforming loans that meet Fannie Mae and Freddie Mac guidelines.