Posts Tagged ‘should I refinance my 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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When Is Refinancing a VERY Bad Idea?

When Refinancing Can Be A Bad Decision

There is something about refinancing which can be like a hype, when everybody is speaking about refinancing many people and homeowners might think that refinancing is like a magic solution to all their troubles and financial pit holes. But that is not the case, refinancing a mortgage is a smart move only if the conditions are right. In this review you could read when is refinancing a very bad idea.

There are several basic refinancing mistakes some people do because they hurry to refinance their mortgage, and never stop for a second and figure out, is this the best thing for them. The way to see if refinancing is a bad idea is to do some simple calculations, which in the end you will have a numeric figure, (in US Dollars) which will be either worth the refinancing effort or not worth the refinancing process.

Even if refinancing your mortgage may be a bad idea, there are other ways to benefit from the current low rates.

Refinancing Is Bad Idea If You Have An Old Mortgage

The first thing you should check before deciding to refinance your mortgage is how long have you been paying for the current mortgage. There is a financial term called amortization. Which is the change in the payments of a loan throughout a whole cycle from beginning of day 1 till the last payment 30 years a head.

The monthly payments might be of the same amount $1000 at the first month and at the last month, but the thousand dollars are divided differently to principle and interest. At the beginning of the mortgage, 90% of the return payments are for paying back the the interest rate, and a small portion is to cut some of the principle down.

Usually after half of the mortgage period has passed, you have paid most of the interest already. And at the second half most of the payments go to the principle and less to the interest rate. So refinancing will be a bad idea because getting lower rates will not save you much.

Refinancing Is A Bad Idea If Your Score Is Now Low

The interest rates for refinancing are calculated by the lenders just like for a first time mortgage. The lender will check your financial abilities, the same Front-End & Back-End debt to income ratio will be evaluated, the lenders will run a thorough check to your FICO score credit report.

If your FICO score is now lower than it was when you first bought the house, than a national low rates will not be relevant for you. The lenders will see that your score is low (or lower than it was) and the rate you will get for refinancing will be set accordingly.

So before you run to refinance do your refinancing homework, check the minimum refinancing credit score needed. If your FICO score is lower, but you still want to save thousands by refinancing, the appropriate move would be to raise your FICO score by some points and get the best refinancing rates you can. Rebuilding the FICO score is not ‘rocket science’, you can learn how to do it through this guide.

Refinancing Is A Bad Idea For Paying Credit Card Debt

Some people who have a lot of credit card debts are tempted by the low mortgage rates to try and refinance the home and to roll the revolving credit debts into the new refinanced mortgage. The main problem is that while dealing with collectors and collection companies is certainly not pleasant, having your home taken away by foreclosure is even worse.

If you have problem to manage your expenses, it is worth to get some home buyers education or family economic course, rather than adding debts to the mortgage. Being behind on the mortgage may end up loosing the house!

Refinancing HELOC loan May Be a Bad Idea

Refinancing a HELOC (home equity line of credit) means that your loan is given to you in exchange for the equity you have in your home. If you have a home equity loan which is more than 80% of your home value, your lenders know they are at great risk if the home market value declines. Since lenders are at risk they will give a higher interest rate, which may be unworthy for refinancing. Another thing to take in mind is the private insurance rates, they will be adding some more payments to the overall loan payments.

You might find out that refinancing a HELOC is a bad idea.

Refinancing With Prepayment Penalty Is a Bad Idea

Some borrowers have a pre-payment penalty on their mortgage. This means that the lender placed a penalty for any pre-payment, even if it is refinancing. Lenders do that so they can plan ahead about their funds and nostro investments, and have a steady forecast for their income. Part of the refinancing homework is to see if your current mortgage has a pre-payment penalty, otherwise refinancing will be a bad idea.

If you plan to refinance with a different lender do the calculation how much you will be saving by refinancing and include the prepayment penalty inside. If you plan to refinance with the same lender, than you have two options. One is to negotiate the prepayment penalty, and the second is to request it to be waived into the second mortgage.

Having a great credit score may help you negotiating every fee and cost! Since lenders are at financial risks themselves and adding high credit customers is part of their goals. If your credit is below 650 check this guide and learn if you can pass the 700 points.

If You’re Planning To Move? Refinancing Is A Bad Idea!

Refinancing has it’s costs. One basic thing you should consider before you rush to refinance your mortgage, is how many month (years) are you planning to stay at your current home. If you are a student or unmarried, and your life is not 100% settled down, than you need to calculate the refinancing ‘break even period’. The break-even period is the exact amount of month (years) you will need to stay at the current home, until you benefit from th lower mortgage rates you achieved by refinancing.

If your closing costs are $2,400 and by refinancing you managed to lower the monthly $1,900 payments to $1,800 each month. Then the ‘break even point’ will be to divide the $2,400 by the $100 savings. This will be 24. This means that the real saving from refinancing will begin after 24 month (2 years). If you plan to move in the next year than refinancing was actually a bad idea since it didn’t save you anything.

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Other readers found these articles interesting too:

1. How You Can Increase The Appraised Value Of Your Home
2. FHA Refinance Requirements
3. FHA Underwater Mortgage Refinancing Requirements

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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.

What Is The Process Of Refinancing A Home Loan?

Refinancing A Home Loan Process Explained

The mortgage refinancing process is some what more simple than the first mortgage process. But still many request to know what are the stages for a mortgage refinancing process, so they know what to expect, and how to plan ahead. In this short review you can read the step by step explanation of a home loan refinancing process.

The refinancing is easier than ‘mortgage buying’, where you need to move to your new home. The refinancing process is a little bit less hectic, because nobody is moving.

First Step Is Do Your Homework

The homework in the refinancing process, is to do a small research about the money you owe on your current mortgage, the equity you may have built up (or not), the kind of mortgage rates you have (Fixed or ARM) and what are your future goals. Before you even begin the home loan refinancing process you should make sure you don’t owe more than your home is currently worth.

• First of all check how much you owe on your current mortgages.
• Second you need to check the current market value of your home.
• When you have those two parameters – Check you don’t owe more than your home is currently worth.

What are your expectations from the home loan refinancing process? These factors should be taken to consideration, as they are your financial goals. Each goal can trigger different decisions regarding the mortgage refinance process.

• Lower the monthly payments ? By lower rates or extend the mortgage life.
• Change the mortgage rates program (ARM, Fixed, Interest Only)
• Avoid Foreclosure
• Cash-out refinance – Use Refi to pay off other high-interest debts you may have.

Second Step In Refinancing Process – Go Shopping

Just like you do (or should do) when you buy a car or vacation. If you shop for cheap airline tickets worth $2000 you should shop for refinancing mortgage quotes. Sit down beside your computer or smart-phone and apply for some quotes from lenders.

This second step is important, as it will give you a ‘look & feel’ for your next mortgage deal. Send out requests, see what the lenders are willing to offer you. Use the web to search offers from lenders you have not been in touch, as well as lenders who already know you. See the difference, check which lenders send better quotes.

Third Step Refinancing Valuation

You now hold of some quotes, and you have your goal you have set for the home loan refinancing process. It is important to explain, that it might be not worthy for you to refinance. You need to compare the savings from the reduced rates to the cost of refinancing to see if it’s financially beneficial for you.

Forth Step – Lenders Will Be Checking You

There might be some differentiation here depending upon the lenders verifying key data, but at this stage, once you picked a quote the lenders will now begin to check your financial possibilities (unlike pre-approval) they will need to see documentations.

• Within three days you should receive loan disclosures, which you must sign and return to the loan consultant or lender.
• Most lenders will want to appraise the house; if the mortgage was taken long time back and the market value has changed. The appraisal fees & costs will be added to the closing costs.
• A thorough qualification check for income, assets, and FICO score credit report.
• Lenders will request a title search, to determines if there are any other liens (tax liens) on the property.

Fifth Step – Closing Refi Loose Ends

The lenders have finished to gather all the needed information and they are ready to proceed with the refinancing transaction process.

• Assigned underwriter will review the loan file with all the information gathered inside, and request any stipulations (further information/documentation) to provide a final approval.
• The finished loan documentation is created and sent to the party closing the loan. This may vary by state but in most cases it can be a title company, attorney or notary public.

The final step in the home loan refinancing process, is the 3 day rescission period. During this time you can evoke your right to rescind (cancel) your mortgage loan. After these three days, the new home loan will be finally processed and approved and you have full legal liability for paying it back as agreed.

Congratulations – Refinance Process Completed

The new lender will payoff the full remaining mortgage amount to the current mortgage company. The new title is recorded and you have finished the whole mortgage refinancing process, and will get the funds of the new home mortgage loan.