Posts Tagged ‘Is it worth to refinance a mortgage’

Refinancing A Mortgage With Bad Credit History

Bad Credit Mortgage Refinancing Options

There is no doubt that trying to refinance with bad credit history can be a difficult process and a very despairing one too. There will probably be more turn down replies and application declines than approvals. The last years have caused many families to drop into a dark financial slippery hole, which includes getting bad credit remarks on the FICO credit score. Having such negative remarks on the credit report makes the refinancing dream fade away.

Now (Oct 2011) when the interest rates have again hit the lowest point ever refinancing the mortgage and locking in 30 fixed rate seems to be a financial dream come true. But those hit by the financial Tsunami of 2009 may have several dark spots on their FICO report which would makes the dream of locking rates be less realistic for them.

Plan In Advance For Refinancing At 2012

The best advice would be to plan ahead, and start making the correct steps toward refinancing the mortgage in 2012. If your score is low (below 600) or you have several negative items on your report history, you need to take action NOW in order to be ready to be approved for mortgage refinancing at 2012.

There are several ways to clean a credit score, and they can all be done without outsourcing the process to expensive companies “mortgage rescue” which in many cases have been found to be scams. Because most of the people are not mortgage-brokers or financial advisers, it is recommended to get a credit repair guide and follow the 1-2-3 steps till the credit report is ‘cleaned’ from as much of the negative items still on it.

You can get here a ’37 days to Clean Credit’ Guide

Once you have completed this part your score may be better and not only you may be approved , but you may be offered even better rates than you would have otherwise.

FHA Refinancing Programs For Low Credit Holders

The FHA (Federal Housing Administration) has several refinancing programs intended for those with bad credit history score. Having a poor credit will not automatically qualify you for these refinance programs, and a lot is dependent on how you score looks when it is checked by the lenders.

The FHA do not lend the money, (private lenders and banks do) the FHA  backs you up, and insures the lenders get their funds back. This is done for a low insurance premium fee which is added to the interest rate.

You need to see if you qualify for a HAMP or HARP program, and see the FHA minimum credit requirements for each program.

The lenders offering refinancing solutions for FHA mortgage refinancing programs, seek diverse financial abilities rather than just looking at your FICO score. Many lenders would refinance your mortgage even if your score is lower than 600. For example QuickenLoans offers 15-20-25 or 30 years FHA mortgage plans for people with score as low as 580.

The FHA benefits are incomparable, and are worth the effort, especially if you are turned down by other financial institutes.

Some Negative Items Stay On Score For Years

There are some negative items which can stay on your FICO report for years and years. They will stick to you like a gum on your shoe and follow you in your future financial decisions. For some of these items there is not much you can do, but let time heal the wounds. Other items can be removed in slow process which can take month.

• Chapter 7′s bankruptcy stay on your credit report for 10 years from the date filed.
• Chapter 13′s bankruptcy stay on your credit files for 7 years.
• Judgments – Will stay on your score for up to 7 years.
• Tax Liens – Will keep showing on your score for 7 years since they were paid. Unpaid Tax Liens stay forever.
• 3rd Party Collections (credit cards) – Stay 7 years since creditor’s default date, and not since last payment.

Payments starts to pile up and begin their clock ticking when they turn ‘terminal delinquency’ this is 6 month after their last due date.

So if you plan on refinance with a bad credit history, and one or more of the items above shows on your credit history report, than you should aim at 2012 refinancing challenge. Get the FICO score fixed before you apply.

The amount of money you would save will be incomparable to what you earn.

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See Related Refi Posts:

• FHA Streamline Refinancing
• Refinance To Assumable Mortgage 
• How To Raise Your Score To 800
• When Is Refinancing A VERY Bad Idea

Refinance Break Even Point – What People Do NOT Know

Refinancing Breakeven Point Calculation

This is one of the basic factors to check when thinking of refinancing your mortgage, and surprisingly this is one of the financial factors most people have the greatest error with. Calculating the refinance break even point is not difficult, and because of that many take the break-even short cut and can end up doing a crucial mistake!

What Is Refinance Break Even Point

The refinance break even point or break even period, is the amount of month a person needs to be living at the refinanced home , before the new mortgage savings take affect. his is commonly one of the first calculations someone refinancing needs to do, and because many do a basic mistake calculating their refinance break even point, they either quit or give up their chance to refinance!

 The Refinancing Break Even Point Breaks People’s Hope

Any mortgage broker you turn to, in order to begin your refinancing process, will ask you at the beginning of the meeting: “How much time do you plan to stay at your current home?”. Then they will run a short refinance break even calculation, and they will show you that you will break even within 31 month.. or 55 month..

Others will read refinancing articles and see there the simple refinancing break even calculation, they will do the math themselves, see the figures and the first thing the do is get disappeared and lose hope for refinancing.

The homeowners have no idea that the mortgage broker and most blogs are showing the most basic mistake of miscalculating the refinance break even point.

What Is The WRONG Refinancing Break Even Point Calculation

Before we review the CORRECT refinancing break-even calculation, it is important you meet the most common mistake usually done. This wrong calculation is done as a rule of thumb in most cases people do not use a breakeven calculator to do it but just simple math.

Lets say you have current monthly payments of $1500 and you run a refinance calculation to see if the refinancing would save you money and the NEW mortgage monthly payments are $1420. This means that refinancing will save you $80 per month.

But refinancing has costs and fees. These fees and costs are paid upfront at the closing of the new mortgage. Lets say the mortgage points were $2400. The basic break even calculation most people would do will then be, to divide the cost by the monthly savings.

This will give them the amount of month it would take to pay off the refinancing costs. In our example it would be 2400/80 = 30. This means it would take 30 month until the closing costs are paid and the real saving of the refinance would take place.

Mortgage Refinance Break Even Period

These 30 month are also called ‘break-even-period’ because if you move from your current home before the 30 month period, then there would be no savings for the refinance process at all. So the mortgage broker (and you) will need to know your future plans before determining that the refinancing was worthwhile the hassle.

Why The Break-Even Rule Of Thumb Is Wrong

There are several factors that this mortgage break even calculation misses, and these factors are critical before taking a decision whether to refinance or not. So lets do some analysis for the mortgage refinance breakeven point:

Loan Balance – There is a difference between the original mortgage principle and the refinanced principle. Different loan balance means that there is a different amortization chart for each, and this means that the borrower will probably owe LESS to the lender at the end of the 30 month with the refinanced mortgage.

Now if at the end of the 30 month (because of the different amortization process) the borrower owes $4000 less on their overall amount debt, the 30 month ‘break-even-point’ is not correct… and should be much sooner.

Time Value of Money. Cash payments you pay today are ‘worth’ more than money paid somewhere in the future. Why? Because if you have $5000 today, investing them in any investment plan the bank gives you, will make them worth in the future more than $5000. So placing a $5000 closing costs now, is not similar to the value of reaching the same $5000 within 30 month.

Tax Deduction. When dealing with money, every bit counts, and the overall picture needs to be seen. Points and interest rates are both tax detectable, but they have different tax value. The points are detectable for the same year of the loan, while the mortgage interest is tax detectable for the years they are paid.

How To Calculate The Mortgage Refinance Break-Even Point

Follow the steps below to find out is it worth for you to refinance your current mortgage.

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Other readers found these articles interesting too:

1. Refinancing Tips & Tricks
2. 5 Critical Steps At Mortgage Closing Meeting
3. What Is The Process Of Refinancing A Home Loan?

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Refinancing? Do Your Homework

Plan Your Mortgage Refinance Wisely

There are many reasons to refinance a home mortgage, but when the refinancing process is done in the wrong way, it may cost you a lot of money! The best advice before refinancing a home loan, is to do your homework. Check and plan all the things that needs to be taken care of, make all the refinancing calculations prior to the decision. In this short review we will try to clear out the things you need to know before you go into a refinancing procedure.

Should You Refinance Your Mortgage

This is the first question you should ask yourself, “should I refinance my home?”, there are several reasons why to refinance, as there are several reasons why not to. The main reason to refinance is to lower your existing mortgage interest rate. If your current mortgage rate is 2% higher than the best national mortgage rates, then refinancing may save you a lot of money.

Other reasons to refinance:

• You may be to lower the monthly payments by extending the new loan.
• You can choose to leave the monthly payments unchanged, but with a lower rate, the mortgage will end sooner.
• If you can afford it, you can pay higher payments each month and shorten the mortgage life span even sooner.
• You can take cash out for other needs – By refinancing a larger sum than is still left on the mortgage, you can get cash money to renovate, invest, use as downpayments, close credit debts, pay other loans or just take a trip to Hawaii.
• Change the type of interest rate from fixed rate to adjustable rate mortgage -ARM (or vise versa).
• Consolidating several mortgages on the current home into one new mortgage.

Homework You Need To Do

Your homework is not difficult, but it is not that simple. First you need to decide about your financial gaols. Where do you want to be after the refinancing ends? with lower monthly payments or with less payments due to pay? With a different type of mortgage rate or with the same? Do you plan to cash out?

If you are uncertain about which goal to choose, here are some questions to ask yourself, they will help you get a direction:

1. Which lender – Are you going to stay with your current lender? There are many advantages as the lender knows you and has all your documentations. Moving to another lender means sometimes paying more fees.
2. What are your debts – How many other debts do you have on your balance? Credit debts, car loans? student loans?
3. What is your FICO score – How high (or low) is your current credit score? A low score may mean getting higher refinancing rates, which can ruin your plans. See further below about simple credit plans that fix credit fast enough to refinance this year.
4. Do you have savings – The refinancing process is not a ’no money down’ deal, there will be points, fees, appraisal costs and other closing costs to pay. Even when some of these fees can be added to the new mortgage, some are still POC paid outside of closing.
5. Make some overall calculations – Will the lowering of the interest rate, save me more money than the fees and closing costs? How much in total will I save with the new mortgage compared to my current mortgage?

Refinance Homework At The Bank

One more step you should be doing is a very thorough ‘rate shopping’. Some people invest more time buying a Valentine gift or a Sony 3D camera than investigating about the new mortgage rates and terms. One more refinancing homework task will be to request two documents from the lending banks:

Good Faith Estimate - This document is issued by the lender and has an estimation of the fees and costs which will be included for the refinancing process. Once you ‘shop’ for the best refinance home rates, you need to have at least 3 ‘good faith estimate’ forms. This will be helpful later on when you will need to negotiate the refinance fees and costs. 

Truth in Lending Statement - This document is a mathematical calculation done by the lending bank, that states all the financial figures of the refinance program. This ‘truth in lending statement’ will show the monthly payments expected, the length of the mortgage, and the overall money you will need to be paying back over time. This is very important part of your mortgage ‘shopping trip’ as its the document that has the actual price tag of the loan.

Do Your Homework – Raise Your FICO Score

The first thing to begin with, should be the action item that usually takes the longest time to accomplish. Before going to any bank and requesting information on refinancing, you should get your credit raise in a few points! The first thing the lenders will do, once you leave their office, will be to investigate your credit score.

Even a small raise in your credit score (30-50 points) can mean lower interest rates, and thousands of dollars saving per year! Credit repair takes time, it is not an instant ‘hocus-focus’ therefore it should be planned ahead, and be the first thing in your refinancing homework to-do list.

Paying hunderds of dollars for professional attorneys services for credit repair may be a waste of money, many people buy today online credit repair plans or software, and do it themselves. It is wiser to invest $97 on a credit repair software than to stay with the current score and get 0.3% percent higher interest rate on your mortgage!

• Here is a credit repair software you can use.
• Here is a 37 Days Credit Repair Program.

Is it worth to refinance a mortgage 2011

What To Do When It Is Time To Refinance a Mortgage?

Like everyone else, you probably heard that everyone is speaking about ‘refinancing their mortgage’.. You probably too asked your self some of the most common questions home owners with a mortgage ask: Should I refinance my mortgage ? I NOW the right time to refinance my home loan ? What does it mean  ? who can do it ? Is it really worth to refinance my mortgage ?

So here are some of the major guidelines for learning “Does It Pay To Refinance My House“.

Is It Worth To Refinance My Mortgage 2011

1. Do you want to save and check if your monthly payments can be reduced. While refinancing your payments will be reduced if you get a lower interest rate. The monthly payments can be reduced also if the lime length of the loan is extended.  If you think on going on the extended term possibility, just bear in mind  the interest rates you will be paying will be higher during the life of the loan. This alone is when refinancing really pay.

2. Do you want, or can you reduce the number of payments left ? This means finishing off the mortgage sooner than originally planned. If you shorten the length of your mortgage by reducing the term of the loan, the mortgage will end sooner but your monthly payments will go up.  Make sure you can stand the raise. Use one of the mortgage payment calculators. Though the payments rise you still will be saving some of the loan interest rates, and will be a ‘free home owner’ sooner.

3. Compared to the mortgage rates the credit card rates are much higher ! So in case you have huge credit cards depts, you have a possibility to refinance and borrow more than the current loan balance. It is up to your home owner financial education and ability to use the extra cash wisely. Pay off high interest debts such as credit card balances or bank or lenders installment loans. If that loan is the only mortgage you have, you will be able to continue deducting the mortgage interest from your Federal income taxes 2011 while it acually payed off your other depts.

4. A refinancing program might allow you to consolidate 2 loans into one. This means that instead of paying back 2 separete loans, now at 2011 they will be both combined into one new loan to pay. In many cases when you get the best mortgage rates the payments will be lower in the over all.

5. When thinking of a refinancing solution for your mortgage, refinancing will help you convert an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM). At Fixed Rate Mortgage (FRM) the lender can not increasing your monthly interest payments over the life of the loan. Which he can and does usually at the ARM home loans. This means your monthly payments will not change dramatically over the years which will help you plan your financial moved some time a head.

It is worth to check what the government can help you with the Home Affordable Refinance Program  – HARP. These are some of the best out there for those who qualify.

Before you refinance, you must know, improving your FICO score even by 30-40 points makes you a better negotiator with the lenders.  You will get better rates, and save a lot of money on monthly payments.

Learn how thousands of homeowners improved their FICO score in 37 days.