Here’s What Not to Do When Refinancing

Are you considering a refinance for your current mortgage? Then you need to be sure that you understand the mistakes that you need to avoid before you refinance your mortgage with any lender.

Here’s what NOT to do when refinancing your mortgage:

Not checking out all of your refinancing options - Before you decide to refinance, you have to shop around and learn what your options are. You don't want to make the mistake of not shopping around and simply staying with your current lender. This can lead to the wrong refinancing option for you in particular. Shopping around will help you ensure that you are definitely getting the best deal possible for your needs.

Signing any loan documents without first carefully reading over them – It’s wise to review every document for refinancing before you close the deal. Otherwise, you will easily find that there was some essential information that was missed.

Not understanding what your break-even point will be for refinancing - Are you aware of how much time you will need to recoup from the upfront transaction costs? You need to know when you will break even and even when you will start getting ahead so you can make sure that you are not going to be in trouble with your mortgage if the break-even point is too far into your future. 

Not providing the mortgage company with the refinance documents on time - If your lending institution is requesting that you provide them with additional documentation like verification of employment or income and expense statements, then you have to be sure that you get them to them right away. Delaying in providing these can lead to costly delays that you could have avoided if you had just gotten them in on time. 

Not having the estimate of your mortgage refinance put down on paper - Lenders and brokers are required by law to give you a written statement for the fees will be for refinancing. You want to get this so you can have it with you at the closing to ensure you get the deal that you agreed to.

Ignoring your credit history-The most common mistake that homeowners make is ignoring their credit history. You should be aware of your exact credit history before refinancing. Many people do not know whether some mistakes were made on their credit reports and ends up taking high interest rates. This high loan and credit fees ends up disqualifying them from mortgages or even missing their chance of buying new homes or refinancing. The best way to avoid this is to always know your credit score as well. Also, check your credit report regularly to make sure there are no mistakes.

Safety Tips for Online Mortgage Refinancing

Mortgage refinance loans are a fast pacing trend in today’s consumer loan markets. Home prices almost always stay high. So many homeowners use the option of refinancing their mortgages or opt for a home equity loan. Online mortgage lenders have used quite a few innovative methods to make the application process easier and simpler. But as you know, shopping online can be quite a tricky business at times. Risks are always involved. To keep your transactions and personal information secured online, our market experts have provided some helpful suggestions and guidelines. 

Know whom are you dealing with

Before you click on the “apply now” button for a mortgage refinance loan, check and verify the respective lender’s credentials. As a worldwide common practice, websites usually post this information on an “About us” page. This page will mostly provide details such as company background, management hierarchy, certifications, and other mortgage sales experiences. If you are unable to verify any lender’s certifications, directly contact them or check with any of the mortgage related government agencies for verification. Genuine lenders will gladly provide all the relevant information for you to verify their credentials and certifications. They are aware of consumer’s concerns over online transactions.

The brand name

In online shopping, the branded firms get most of the business. People usually trust familiar and known names. Popular sites are known for providing excellent security features, which results in generating more traffic on their portals. The more recommended your online lender is, the better security they’ll have to offer. This does not mean that small time merchants are a taboo. They have secured connections and possibly lower rates too. So, do lookout for brand names, but also keep an eye on the small dealers.

The “S” of security

While applying online, look for two highly important and easy-to-identify security features on the web pages. A closed padlock or an icon of a key signifies that security options are enabled for the website. Also, on the address bar where you type the website name/URL, instead of “http” there will be “https”

For example: https://www.lenderxyz.com

These sites use an encryption service and have a link or a page dedicated to show the details about the connection.  But still, always be careful while filling out application forms; especially, the ones which ask for information such as your date of birth. These little pieces of personal information can be used by credit card scammers and other illegal activities. If you’re suspicious about a particular website, but they have been highly recommended, then contact them and ask for an executive to discuss their privacy policies.

Keep yourself updated

Keep checking for articles to educate yourself and to stay updated on the latest information about the online mortgage refinancing process. There a lot of websites which guide you through the process of home equity loans, mortgage loans and mortgage refinancing. Professional lenders are prompt with helpful advices and up-to-date information. They even conduct seminars and provide active online assistance to answer your queries.

Initially, taking precautionary measures might feel to be a little time consuming but, as the saying goes, better be safe than sorry.

So, keep these suggestions in mind while applying and working with online lenders for mortgage refinancing, and have a safe and satisfactory web experience.

 

Common Refinancing Myths

Refinancing is increasingly getting difficult and this trend is expected to prevail for a while before rates climb down and homeowners return to the market. Refinancing qualifications have become rather challenging. Conventional credit profiles are being scrutinized more. People with little or no home equity are at a loss on how to put their refinance plans into motion.

Here, we discuss some basics of refinancing. More importantly, we clarify some common refinance myths:

Myth: Refinance Eventually Leads to Losing Equity

Truth: This is a common misconception. Refinance doesn’t eat into your equity. In fact, it helps you save more over a longer period. This is true unless you opt for cash-out refinance where the loaned principal amount is raised. Secondly, some folks don’t understand the concept of building equity. Refinancing requires some strategy if you are serious about increasing your equity. More equity doesn’t mean getting a gift check from your lender or paying progressively lesser on your original loan.

Mortgage payments are made up of two parts. One part goes to your principal and the other towards the interest. If you find a refinancing option with no prepayment penalty, additional payments to decrease the principal helps. It allows you to create more equity. The refinance allows you to pay off the home loan in lesser time than the original loan period with negligible changes to your monthly payment pattern—these are significant savings!

Myth: Refinancing Before Reaching Breakeven Doesn’t Make Sense

Truth: This refinancing myth is the result of incorrect interpretations of breakeven period. Sometimes, rates drop to an irresistible low, luring people into refinancing aggressively. Some people start questioning the wisdom of refinancing when the breakeven of the previous loan hasn’t been fully realized.

People don’t look at the bigger picture. If the interest rate can be lowered to such an extent that you can absorb the new breakeven period and still get more equity, you should go for it! To avoid such confusions, follow the simple rule of keeping your refinancing decision one dimensional. If you can lower your rate without the need to repay more, you stand to gain. Please note that the best rate for you might not be the lowest rate in the nation. It is simply the best available option among the many mortgage quotes you receive.

Myth: Refinance Always Leads to Higher Closing Costs

Truth: Yes, refinancing helps you get some equity in times of crisis. Equally true is the fact that refinancing brings along some additional costs that aren’t always visible. Refinance calculations work out better in the customer’s favor when the credit amount is big. A slightly longer, bigger refinance helps to neutralize the high closing costs.

Before jumping on to conclusions work out the true cost of your refinancing proposal. Every refinanced mortgage comes with a GFE—Good Faith Estimate where the total closing cost is mentioned. This figure can be slightly confusing. Usually, it includes many components for which a borrower would be paying anyway. This includes partial or prepaid month interests, escrow property taxes, and escrow homeowner insurance. Besides these, other components such as documentation fees, application fee, credit report fees, and title insurance make up the true cost of refinancing.

Myth: Repeated Refinancing Approvals are Simply Impossible!

Truth: Refinancing isn't refused just because a borrower had refinanced in the recent past. There are no mortgaging or federal laws which limit lenders from lending to people who repeatedly refinance. Yes, the success rate for such refinancing applications might be lower, but the market understands that whenever lending rates are lower, refinancing will be in demand.

 

Some lenders prefer profiles where the customer has waited for a certain period before seeking another refinance. Some borrowers prepay on their existing loans to get a low rate refinance. Though there is nothing wrong with this strategy, it could lead to some losses. We recommend keeping a check on the prepayment penalties that have huge regional fluctuations. Prime mortgages are usually without substantial prepayment penalties.

Advantages of Getting a Mortgage Refinance

When homeowners decide to refinance their mortgage, their chief concern is to get lower interest rates. It is true that refinancing is a great way to get lower rates, but there are several other benefits as well.

If the interest rate on your existing mortgage is 6 percent and you can reduce it to 5 percent by refinancing, you should definitely go for it. Besides reducing your monthly mortgage payments, mortgage refinancing is ideal for long term cost savings. Here are some of the benefits of getting a refinance.

You can reduce the term of the loan

When you refinance, you get to reduce the term of your home loan. You can, for example, go from a 30-year term to a 15-year term. And when you reduce the term, you get lower interest rates. This will also reduce your interest costs. Your monthly payments will go up, but you will be able to pay off the loan faster. As a result, you can build up equity faster.

You get to switch from an adjustable mortgage to a fixed interest rate mortgage

It is true that ARMs have low interest rates during the initial period. But the rates can go up significantly when the loan resets. Worse still, there is no way you can predict what the rates will be five or ten years from now.

If you have an adjustable mortgage, you will be able to switch to a fixed interest rate mortgage when you get a refinance. This will also ensure your piece of mind.

Cash-out refinancing

If you get a cash-out home loan refinance, you will be able to turn your home's equity into cash. The value of your home may have appreciated over the years. If you feel that you have accumulated considerable equity, you can refinance the home at its current value and pocket the difference. You will be able to use that money for a home remodeling project or something similar. Make sure that you do not use this amount to splurge on unnecessary items. If you are not a disciplined borrower, a cash-out refinance will land you in even deeper debts.

Consolidate two loans

When you get refinance, you can consolidate your main home loan and a home equity loan. This will allow you to get an even lower monthly payment. In addition, you will need to make only one payment per month.

Recover from divorce

You and your spouse may be co-owners of the property. While there is nothing wrong with that arrangement, problems can arise if you decide to divorce. If, after divorce your ex-spouse doesn't contribute his/her share of the monthly payment, you will be in trouble. In this case, if you get refinance, you will have sole ownership over the property if you decide to keep the home.

If at least one of the above reasons appeals to you, you should consider the possibility of getting a refinance. Call your current lender and ask if they are willing to offer you lower rates. If they aren't, you should consider other lenders. You can search for lenders online. You should also consider contacting community banks. Whether you stick with your current lender or not, you can save a lot of money by getting a refinance provided that you have got the right reasons.

Minor Oversights That Can Land You In an Undesirable Mortgage

If you are not an all cash buyer, you will definitely need to get a home loan. The home loan application process can be both stressful and time consuming. A minor oversight can lead to big headaches in the future. So take your own sweet time to review your loan documents.

Do your research

Do your research to keep yourself informed about the process. You should be crystal clear about the terms and conditions before signing the loan document. If you come across terms that you do not understand, ask about them. Don't assume that things will work out fine. They probably won't. This doesn't mean that your lender is trying to cheat you. They aren't, but you might assume that your mortgage will work in a certain way. And when you later discover that your assumptions were wrong, you will be in for an unpleasant surprise.

An inability to understand the terms specified in the loan document will land you in trouble. Some mortgages, for example, come with prepayment penalties. These penalties limit the repayment options you have. If the mortgage comes with a prepayment penalty, you will have to pay additional fees if you pay off the loan in 1- 3 years. Now that interest rates are pretty low, you will definitely not want to choose a mortgage with a prepayment penalty.

Here is a glossary of terms you might come across in your document.

Amortization

The word amortization is used to refer to the process of reducing an amount of money owed by making regular payments. During the initial years of your mortgage, the major chunk of your monthly payments goes towards the interest. Towards the end of the term, you pay more principal and less interest.

Comparables

The term comparables refers to comparable properties in your area. While appraising your home, an appraiser will consider the price at which similar homes in the locality were sold.

Escrow

Every month, a certain percentage of your mortgage payments goes to your Escrow account. Escrow will hold this amount to pay your yearly bills such as mortgage insurance, property tax, and homeowner's insurance.

Federal Housing Administration (FHA)

FHA is a US government agency. It sets the mortgage underwriting standards and insures home loans made by banks and private lenders. FHA loans make homes more affordable because they allow people to borrow with less equity or lower down payment.

Lien

The word lien means that somebody has a legal right to somebody else's property. The mortgage is a kind of lien. It gives the lender the right to seize the borrower's property if terms specified in the mortgage are not met.

These are some of the terms you will come across during your home loan application process. There are several others, too. Here is a quick overview of some missteps you must not make.

Your credit score determines your chances of getting a loan, so review it frequently. Avoid opening any new line of credit as it may affect your score. Do not change jobs in the months before applying for a home loan. If you must change jobs, wait until you get the sanction letter.

Similarities between Buying a First Home and the First Day at College

Do you remember your first day of college? The excitement, setbacks, and anxieties you experienced? Remarkably similar emotions are experienced by first time homebuyers. 

Buyers are always looking out for a perfect home. The sky is the limit as far as expectations are concerned. They hope to find an affordable home with the best schools nearby, a huge yard, and many more things.  

New college students have great expectations. They’re motivated to use money judiciously, tackle the challenges of higher education, attain high scores, and work hard to subsist. 

There are some additional similarities in the experiences of first-time homebuyers and first-time college goers:

Milestones

Students beginning college move out of home into new environments away from friends and family.  They take on additional responsibilities and get set to enjoy their freedom.  It’s a huge transition phase.

New buyers consider purchasing a home as a transition into adulthood.  Homeownership involves a major commitment with regards to money and time.  With a home purchase, buyers get set to plant roots in a new community.  They can now finally unpack all boxes and settle into a place called home.  They get ready to accept responsibilities related to home payments and maintenance.

Buying a home and going to college are both major accomplishments which represent maturity.

Lengthiness

The process of getting admission into a suitable college sometimes takes months.  Teenagers are required to prepare for qualifying tests, apply, and wait for acceptance.  Then there’s paperwork and orientation. On the day college begins, they’ve got to move around an unfamiliar campus in search for their classes. Getting into college and adjusting to it can be a really stressful process likely to test both confidence and patience.

Buying a home is a time-consuming process too which requires a lot of patience.  Buyers need to get their loan pre-approved before beginning their house hunt.  Focusing on the correct home requires great persistence in attending to open houses, searching online, and staying connected with realtors.

Bids can be turned down.  Even after the offer is accepted, a lot of work is required to complete the buying process.  There are inspections, loads of paperwork, and a lot of communications with the lender.  Buyers feel quite exhausted and long to hold the keys of the home in their hands.

There are hordes of stressful steps involved both in getting into a home and into a college. Both processes require tremendous persistence.

The Learning Curve

Students new to college struggle to remember acronyms which refer to classes, departments, buildings and books and keep referring to their orientation manuals. They face many other newbie challenges. Eventually they get familiar and then things aren’t quite as tough.

First-time homebuyers also often get tied up in knots when they meet their lender to discuss loan options and interest rates. All the numbers and real estate jargon can be truly mind-boggling. Making long-lasting decisions without being clear can be a real challenge. It takes a while for everything to get sorted out smoothly.

When you’re new to college or to the home buying arena, it’s of utmost importance to study the topics and processes as best as you can. And ask questions – lots of them. Speaking to experts is one of best ways to get the right direction pointed out.  This helps in getting the confidence to move forward.  

Be sure to consider the advantages of knowing the true value of your home. You can obtain a free home valuation report from Neighborhood IQ to find out how much a property is worth, especially after your fall and winter home improvements and maintenance projects are completed. Also, the Home Loan Advisor can analyze your property, current market conditions, local market comps, and other variables in our proprietary algorithm, and match you with potential lenders.

Home Refinancing 101

If you’re considering getting your home refinanced, you need to know what exactly is involved in the process. This is an important decision and if you go about it in the right way, you’ll be able to save a lot of money. But if you take one wrong step, it might prove to be a really expensive mistake.   Here are some basic concepts and information about how you need to prepare yourself.

A home refinancing transaction is one in which you swap out an existing loan for a new and more favorable one. The old loan is paid off with the amount received from the new loan. Sometimes borrowers apply for an extra amount while refinancing to get some equity out of an asset. This is called "cash out" refinancing.

Advantages of home refinancing

By going in for refinancing, you can better your financial situation in many ways. The benefits include lower interest costs which result in a reduction in the amount that you are required to pay monthly. You can reduce your risk and get cash out which can be used for other necessities. When you opt for home refinancing, you can consolidate debt and probably get some tax benefits as well.

Home refinancing and associated costs

Just like everything else in this world, home refinancing is not for free. You will need to pay fees to the new lender to make it worthwhile for him to disburse your loan. You may also have to pay for legal documentation and filing, appraisals, credit checks, and other related things.

Understand that even though a lender may advertise a loan as one having no closing costs, you will be paying those fees as part of other charges. This generally happens through a higher rate of interest.

Is home refinancing worthwhile?

Before you make a final decision regarding whether or not to go in for home refinancing, you need to consider both the plus and minus factors of your old mortgage and the proposed new one. In normal circumstances, home refinancing is a sensible move when there is a lower rate of interest or a lower monthly payment. If you can optimally restructure debt or get your loan term shortened, it’s definitely worthwhile.

Once you’re clear of all costs involved, you need to look at how much you’ll be saving over a period of time and how long it will take you to recover the associated up-front costs. An important consideration is whether you plan to live in the home and keep the loan for long enough so as to make it worthwhile.

Home refinancing makes real sense when you reap sound benefits from a new loan. Some guidelines that it might be a smart move are:

·         Rates of interest are substantially lower than your earlier mortgage

·         You plan to keep the loan and live in the home long term

·         Your credit rating has seen an upward movement since you got your earlier loan

·         You are eligible for an amortizing loan in place of an interest only loan

·         You can move out of a high risk mortgage

Home refinancing offers a lot of benefits but it can be a bad idea if it leads to increasing your risk and wasting money. It is best to understand the worth of your house before you decide to get a refinance. An online home value report can be generated at Neighborhood IQ for free. You also need to make sure that you’ll be able to recover all the refinancing costs before signing on the dotted line.

 

Thinking about Refinancing? Here are Reasons Why It’s a Good Idea

Like many homeowners, you probably want a lower interest rate and a shorter mortgage. If you are considering refinancing your mortgage, it can take a lot of effort and time to begin the process. While there are some not-so-pleasing aspects of refinancing, it can be a good financial move if your mortgage payment is lowered.

Under the right conditions, refinancing your home can certainly benefit you in the long run. It all depends on your particular financial goals. Let’s take a look at some of the reasons why refinancing is a good idea:

You can get a lower interest rate. Since interest rates are at a record low right now, you can get 30-year and 15-year mortgage rates far below 5%. This is one of the best incentives to refinance because it not only lessens your monthly payment; it also allows you to build equity in your home quicker. You can save thousands of dollars in interest by refinancing, and you can pay off your mortgage debt faster. According to lending companies, reducing your interest rate by 1% is an incentive to refinance.

You can shorten the term of your loan. If you switch from a 30-year mortgage to a 15-year mortgage, the shorter loan can fit into your budget. Your monthly payment may only increase by a few hundred at the most, and this may be a feasible option for your household. You can use a mortgage calculator to estimate your new payment.

You can lower your monthly payment. If your goal is to have an extra couple of hundred dollars every month for savings, investments or vacations, refinancing at a lower interest rate can accomplish this. You can also save a great deal of money in interest. Keep in mind that lowering your monthly payment can add years to the term of your loan, but it can be extremely helpful.

You can get a fixed-rate loan. Your adjustable-rate mortgage can be refinanced for a lower interest rate, and you can lock into this rate for years to come. You can also plan a fixed payment with more ease every month.

You can cash out your home equity. This can be a savvy move in certain instances. You may want to cash your home equity to invest and start a business. Or you may simply want some money to pay for other expenses or manage debt.

You should also take into consideration the fact that refinancing involves closing costs and other fees. It may cost thousands for a new mortgage, but only you can determine if the costs of refinancing is worth it in the long run. Also, if you are considering moving anytime in the next few years, refinancing will probably not be the best option.

Refinancing means that you need to know the value of your home. You can get a free home valuation report from Neighborhood IQ by clicking here to find out your home’s worth to help you decide if refinancing is a good way to go. It is important to weigh the pros and cons of your unique situation. With careful planning along with knowing the value of your home, refinancing could turn out to be one of the best financial decisions you have ever made as a homeowner.