Article that tells you when you need to refinance your mortgage and what to think about.

When is it worth it to refinance your house? This guide will take you through a couple of the points you’ll need to know about when you’re trying to decide whether to refinance your mortgage or not.

Generally, you need to be aware of what the interest rate you’re paying on your mortgage is. When interest rates start to go down, you have to be ready to jump on it and take advantage of a lower rate. It generally costs a couple of thousand dollars to refinance, though, so you need to think about several factors before deciding whether or not to do it.

First, how much are you paying now? You need to know both your monthly savings and the amount of time you expect to be there. Only refinance if you’re sure that you will be staying in that house for awhile – moving and selling your house would wipe out all the benefit of refinancing. You also need to think about whether interest rates will go lower in the future. You don’t want to jump on a refinancing and then suddenly find out a few months later that interest rates have dropped a point. Even a small change in interest rates can produce a large gain over the life of your loan, so you want to make sure you’re refinancing at the low point. Talk to your bank loan officer – they’ll generally tell you whether they think it’s a good idea and what direction they think interest rates will be going. Ask them to show you specific calculations, and then check them yourself.

With the many ads that you see each day telling you to refinance, how do you really know whether this is the right decision for you? Read on to find out.

Why do I want to know about refinance?

Here are some of the basic reasons to consider refinancing your loan

Your current interest rate is higher by more than 1% of the current rates.
You want to move from an adjustable to a fixed rate of interest.
You want to cash in on the equity of your home to finance your children’s education or consolidate other higher interest debts.
You may have another mortgage at a higher rate of interest.
You plan to stay in this home for at least five years before moving.
You want to make some renovation in the home for which you need cash.

Once you decide to refinance, consult a mortgage advisor about the best time to refinance. It may be advisable to wait until interest rates stabilize, instead of just rushing into a refinance.

How can a mortgage calculator help you refinance

A mortgage calculator can help you work out the savings in interest over the remainder of your first mortgage. You can compare savings with different interest rates from different lenders and choose a refinance loan with the least processing and closing costs. It saves you number crunching and you get results instantly. You can then decide on the refinance loan that offers you the best deal.

Options in refinancing are many. You can use a refinance under the rate and term system to repay your first mortgage. Under the scheme you can get up to 2% of the new loan amount as cash back or $2000, whichever is less. You can use a rate and term refinance to repay a second mortgage. You can use a refinance loan to save money on your earlier mortgage, if you are planning to live for more than three years in the same home. You can shift to a 15-year loan with a higher monthly outgo, but work out the benefits of doing so using the mortgage calculator before making any decision.

Illustration

Let us consider that the original interest rate is 6.5% for a 30-year loan of $250,000. Assuming you have 120 months or ten years left of this loan and the interest rate reduces to 6.25%. You can go for a refinance loan of $200,000, of 30 years at 6.25%. Using a mortgage calculator for the remainder of the loan amount of $139,623.21, your monthly payment works out to $1580.17 for the old loan and $1231.43 for the new refinance loan, giving you monthly savings of $348.74. This works out to a saving of $125544.84 if you take the refinance loan. All figures are indicative and may not reflect actual interest rates. For the current interest rates, you can use the mortgage calculator for refinancing the loan which is available at most financial websites.

The disadvantage of not using a mortgage calculator

Taking a refinance loan costs money and involves savings of thousands of dollars over the tenure of the loan. It will be foolish to ignore the potential savings gained by using a mortgage calculator. Hence, consult a reputed mortgage lender and use their mortgage calculator to go for a refinance today.

Source: Buzzle

A borrower can have a credit score of less than 500 and still be able to purchase a property or do a refinance. There are mortgage lenders that specialize in this type of financing.

A borrower can have a credit score of less than 500 and still be able to purchase a property or do a refinance. There are mortgage lenders that specialize in this type of financing.

Benefit

Lenders who refinance for borrowers with 500 FICO credit scores or less separate borrowers by how late they are on their mortgage. These classifications include:

late once by 30 days
late more than once by 30 days
late once by 60 days
late more than once by 60 days
late by 90 days
late by 120 days
These types of loans are available for both primary residences as well rental properties.

These loans are also for full documentation or stated documentation loans.

Restrictions

These types of loans are usually for borrowers with lots of equity in their property.

Lenders often limit loans to 60%-75% of the value of a property. Loans in the higher range here are borrowers with relatively better loan profiles, such as fewer mortgage lates.

The equity in the property is enough to protect the lender in the event of a borrower default.

Interest Rates

Mortgage rates for this type of loan are usually much higher than for other loans. Rates nearly double that of other loans are not unheard of.

These loans can also come with or without a prepayment penalty.

These types of loans are available for:

primary residence
condominiums
3-4 unit properties
rural properties

Many of these loans have no limit on their cash out up to the loan to value ratios. For example, you may be able to cash out an unlimited amount up to 70% of the value of the property.

Source: Buzzle