Archive for July, 2010

Does It Pay To Refinance My Mortgage

Does It Pay To Refinance ?

Does It Pay To Refinance My 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“.

The most important factor concerning refinancing is ”timing”, you need to  be in a right position with your ‘old’ mortgage regarding the new mortgage offered. When people wonder when is the right moment there are a number of guidelines to follow. 

When is it the right moment to refinance ?

One rule of thumb is to divide the reduction in the monthly mortgage payment (with the new loan) by the cost of the refinance.  If you calculated that after refinancing, your monthly payments will be lower by $100 than your current home loan, and the whole refinancing procedure with the lenders cost you $3,600. the right decision would be to refinance the current loan if you plan to stay in your home for at least 36 months - three years ($3,600 / 100 = 36). 

The second rule would be considering how many years you have left on your current mortgage. If you are a few years to the end, refinancing does not usually pay off even at much lower interest rates. If you are in the beginning or deep inside a mortgage loan, refinancing might well pay the all the closing costs and fees.

Take a look at the current markets interest rates, if refinancing your house would reduce your loan interest rate by a quarter or a half point, it will probably not pay itself to refinance your home. If you see that you can bargain or negotiate a mortgage rates which are one point or more from the new lenders, refinancing might be a money saving move.

Fees and closing costs should seriously be taken into your mortgage refinancing calculation, What many people don’t consider when they think about refinancing their home are the fees and closing costs associated with refinancing. First the fees can sum up to a few thousands dollars, second you will be asked to pay the whole sum up front. In case you don’t have the money, some companies will combine all costs in the new mortgage, which men you will be paying interest on this money for the whole life term of the loan.

Is It Worth To Refinance My Mortgage

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 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 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, 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 ime a head.

‘Should I Refinance’ Calculator

Should I refinance ?

Should I refinance my home loan NOW ?
Can I refinance my mortgage ? How can I do it ? Is now the right time ?
If one of these questions have passed your mind in the last few month, then this calculator is especially for you.

Here you can check with this mortgage rates calculator the whole process to find an answer to your questions on mortgage refinancing.

How soon you can refinance your home depends on the lender where you apply for the new loan. Some lenders will refinance you regardless of how long you have owned the property. You need to know that in case you are about to pay off the mortgage in short time (1-3 years) you might find after doing calculations that it is not worth to refinance the mortgage, because all the closing costs and fees, will sum up to the amount you will be saving with the better interest rates.

Some lenders might have “seasoning” requirements, which means you must be in your house for at certain period of time. However, some FHA mortgages require that the borrower own the property for a full 90 days prior to refinancing. Also, if the borrower has a pre-payment penalty on his mortgage, he may incur a fee for refinancing prior to the end of that period.

Even when you can refinance immediately, take into mind that some lenders or banks might request you to pay all the fees associated closing costs in advance or in one bulk. This means you will need a large sum of cash ready.

How to qualify for refinancing

There are some terms and documentations you will probably need to provide in order for the refinancing process to be completed.

1. Show income abilities: Usually, you’ll need to show original pay stubs for the last 30 days. So the lenders have some proof you have an income and family steady cash flow.
2. Have your home owners insurance ready: the lender will verify you have a sufficient coverage on your property.
3. W-2 forms can be asked for - The lender whats to secure it self and learn more and verify past employment and income history.
4. Asset information: Will serve as your ability to financially stand all money needed for closing costs, statements for savings, checking and 401K accounts and investment records for mutual funds or stocks. This asset allocation is your financial back bone.
5. Title insurance : Your lender verify the ownership and taxes, names on the title and legal description of the property.

I you are all set with this, you can now check with the refinancing calculator, is it worth the hassle and trouble. Will it in the bottom line – save you money or improve your financial situation.

Over the last couple of years with interest rates at a 40-year low, many people refinanced their mortgages. Even though rates have crept up over the last couple of months, refinancing may make sense for you.

Mortgage Foreclosure

Refinance can be a solution in case you think you slide into a mortgage foreclosure situation. As a homeowner you have signed a mortgage agreement saying you will make regular payments. The lender agreed to give you such a large sum of capital since he knew if the payments fall behind or are missed altogether he may take the home back through legal action.  It is best that, the mortgage will be refinanced, and the loan will be spread again to 30 years, which will mean lower monthly payments you can afford, even though in the over all more money will be payed at interest payments.

How Much House Can You Afford – Calculator

How Much House Can You Afford?

 People some time find themselves buying a property they actually cannot afford during the whole mortgage life time. It is important to check in advance and calculate, which amount of money is needed in order to buy a house you can afford. 

Your main purpose then is to find out the most expensive house you can buy given your income and savings. This question is not only for financial stability, this question will help you know your purchase upper limits, so you do not pass hoses you think are too expensive for you, and do not try to buy homes which are way higher than you can afford.

Quick personal mortgage ability check

How much you can afford is a function of two things: How much you can borrow and how much down payment can you handle. Most people can afford a home that costs up to three times their annual household income, if they can make a 20% down payment and have only a moderate amount of other debt. 

How much down payment can you afford ?

The down payment –  is an easy figure to estimate concerning a mortgage loan, you need to know how much free cash and saving you have and plan to put as down payment. 0% down payment loans are more rare to find and qualify for. Usually a 3% is a minimum request. Most lenders will be more willing to lend you higher sums of money when you show 20% of the mortgage down payments. 20% down payments will save you the need for PMI (private mortgage insurance) freeing even more monthly payback money – which means more mortgage possibilities for you.

In case you already have other debts – like credit card debts, bank money loans still running, lenders will count them as part of your over all ability to pay back, and you will certainly get a smaller mortgage. Try to pay back all debts if you want the chance to afford an bigger home mortgage.

Secondary rental possibilities – When you get a home with a unit you can rent out, you can count the rent you’ll receive as income, lenders will count this extended income and be willing to provide you with a larger home loan.

30-year loans  - those long term home loans, usually have a low monthly payments (compared with the same amount payed back at a shorter term), since the monthly payment are lower and more affordable, you can get a higher mortgage (afford more house) when going for the jumbo loans.

Closing costs- since they need to be paid, the money can be deducted from the down payment (lowering the down payment % of the mortgage) or rolled into the mortgage loan, which means paying a higher loan, but getting a bit less money to buy the home you intended.

‘How much house can I afford’ calculator

To arrive at an “affordable” home price, we followed the guidelines of most lenders. We’ve allowed a total debt-to-income ratio of no more than 36 percent. And we have assumed a housing payment-to-income ratio of 28% for our conservative estimate, and 33 percent for the aggressive one.

The other aspects of the money borrowing

Here are some questions to ask yourself before buying a house with money you don’t yet have:  Do I actually need THIS house ? Is it the right property for me to buy at this stage in life ? Am I buying this house for the right reasons, or do I wish to impress others or prove something to my self esteem? Do I have any financial safety net ? what is my full asset allocation ? What other important goals do I have in life – study, renovate, travel. Can I afford some unexpected expenses like an emergency teeth medical care, an unwanted car repair, pay a handy man for a leaking water pipe repair job.

Remember a mortgage is a long term loan, it will be part of your life for 20-30 years, so some of the double checks you owe yourself regard the long term aspects as far as you can predict them. One factor is what other savings needs, including personal retirement needs, family plannings, children college you wish to support. A mortgage agreement includes other costs and fees, closing costs, lawyer fees, deed and title costs.

Every mortgage will need a private mortgage insurance (PMI), which you’ll owe if your down payment is less than 20 percent of the purchase price. It averages from $50 to $80 per month.

If you need first time buyer education, try to find a coarse at a place near you. This first time house buyer assistance can be a great help before your first property purchase. 

Two usefull tips:
1. Your monthly mortgage payment — including principal, interest, real estate taxes and homeowners insurance — should not be more than 28 percent of your gross monthly income (before taxes). This is your housing expense ratio.

 2. Make sure your total monthly debt obligation should not be more than 36 percent of your gross income. Those debts includes the mortgage payment plus other obligations such as car loans, child support and alimony, credit card bills, student loans, condominium association fees. (Note: Government and certain other lenders may be more lenient.) This is your debt-to-income ratio.

Interest Only Calculator

Interest Only Calculator

This Interest Only Calculator helps you compare interest only loans with fully amortized loans. An interest-only mortgage provides flexibility to the borrower in the early years of the loan.

what is an interest only mortgage

Interest only loans are for borrowers who have a good reason for preferring the lower initial required payment, and are prepared to deal with the consequences. With these loans you might be paying the interest for some years while the principle balance of the loan has not changed.

These loans allow people who estimate their earnings to grow substantially over the years, till the effect they can handle a 100% principal left untouched (with the IO mortgages) and start paying the principle at the end of the interest only period.

People need to figure can they sleep well with the risk that the expected higher income won’t materialize – when it comes to the principal payments.

If you know your way NASDAQ or Dow Jones, and plan to invest the free cash flow, then you will want for that as much free cash on your hands as possible. Using this interest-only mortgage, you can invest the cash flow and succeed as long as your investments ROI rates are higher than the mortgage rates. 

Interest-only rates mortgage info

The rates on interest-only loans can change as often as every month, or may be fixed for a 10-year period Recalculate your interest-only payment before your next scheduled rate adjustment.

Also, beware of balloon loans or negative amortization loans, where the amount you pay is not enough to pay the interest and the balance actually increases over time.

An “interest only loan” allows a person to pay a lower monthly mortgage payment at the beginning of the loan in order to save money (or to anticipate a larger salary) so that a higher monthly payment is more affordable later in the loan.

This Payment Responsive to Principal Reduction: On most IO loans, whether FRM (fixed rate) or ARM (adjustable rate), the monthly mortgage payment will decline in the month following an extra payment. This allowing people who have plans to pay out large parts of the mortgage (like after selling another house or receiving a large bonus) to reduce dramatically the monthly payments. This is the only type of mortgage that has this feature.

Risks of interest only mortgages

Borrowers can pay only interest, or can choose to repay some portion of the loan balance as they see fit. However, after interest-only payments for a period of years, the amount borrowed must be repaid over a shorter period of time, producing a significant increase in payments. On the other hand, lenders view interest only mortgages as riskier. because after any period of time has elapsed, the loan will have a larger balance (compared with regular loans). If it is riskier for the lender, it will have a higher price for you. 

FHA Loan Limits 2011 – Calculator

FHA Loan Limits calculator

FHA loans are designed for low to moderate income borrowers who are unable to make a large down payment. FHA loan limits vary based on a very large variety of housing kinds and the state and county in which the property is located.

The Federal Housing Administration (FHA) sets limits on FHA mortgage loan amounts that HUD will insure. Limits are set for both FHA-insured traditional forward loans and FHA-insured Home Equity Conversion Mortgage (HECM) reverse loans.

The FHA mortgage limits lists- can help you find out accurately what are the limits in your exact location, where the house is bought.

FHA mortgage limits 2010 checklist

Before you apply for an FHA home loan, you need to find and gather these documentation to be sent to the FHA underwriter, who will review your details and either approve or decline your request. 

1. The addresses of all your residences over the past two years. As mentioned before, the location is a factor the FHA considers as it has some social ways affecting the financial possibilities.
2. Your Social Security Number.
3. The names of your employers over the past two years. This is to know your former income rates, job position, professional experience.
4. Your current gross monthly salary. As this may count of your payback limits, income to mortgage ratio, principal at risk and more.
5. Names, addresses, and account numbers with balances on all checking and savings accounts. This asset allocation is important as a safety net, like a financial X Ray over all picture.
6. Addresses and loan information of any other real estate you owned. People who have owned property are probably in a different situation than those who are first time home-buyers.
7. Estimated value of your furniture and personal property. Some people apply for FHA loan help while they own cars and jewelery which is part of their financial strength.
8. W2′s for the past two years and current paycheck stubs.
9. Certificate of Eligibility and DD-214 (Veterans only). A Report of Separation is generally issued when a service member performs active duty or at least 90 consecutive days of active duty training.
10. Self-employed individuals will need to provide personal tax returns for the past two years and a current income statement and balance sheet for the business. Not similar to a salary worker who can show a last paycheck, self  employed have a roller coaster of income ups and downs. 
11. Students will need to provide evidence of enrollment. If you have student loans, you need to provide verification information

Know that your credit report is NOT needed. Even though, underwriters can make a more skilled decision about whether to approve you for an FHA Loan by looking at your credit score (FICO) to help them determine if you are in their eyes safe to be given government money, and evaluate whether you are likely to pay your FHA home loan on time

Here you can check your own FHA mortgage limit, The FHA Loan Limits calculator helps you calculate the size of the loan the FHA is willing to insure  when you apply for a home mortgage loan.

Also before applying, it is important to recognize whether or not you can make a 3% down payment on the house you are looking to buy.

 The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

FHA Loan Rates © ML

What is FHA Mortgage Insurance?

FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default. Loans must meet certain requirements established by FHA to qualify for insurance.