Refinancing... Is it a GOOD IDEA??

What is refinancing?

Refinancing replaces your current mortgage with a new loan that has a more favorable interest rate and terms that you can afford to manage. The new loan is secured on the same property as your current loan. The new loan funds are used to pay down the current mortgage while any remaining money can be used to your best advantage.

Example: Mr. & Mrs. Lee both took out a mortgage loan worth $500,000. After 4 years, both of them paid off $250,000. Mr. Lee then took out another home loan worth $250,000 in order to repay the existing loan balance.

On the other hand, Mr. Nava took out another mortgage worth $300,000 in order to repay the unpaid loan balance which is $200,000. Mr. Nava could use the remaining balance in order to fulfill other financial obligations.

The first scenario is a simple refinance while the second is that of a "cash-out refinance".

5 Reasons why you should refinance

If you're thinking of refinancing your house, check out these 6 reasons why a mortgage refinance might be right for you.

• You want to save more:
  Your monthly payments will be reduced if you get a lower interest rate or when the term of the loan is extended. However, with an extended term, you will be paying more in interest during the life of the loan.
• You want to pay down your mortgage quickly:
  You can shorten the length of your mortgage by reducing the term of the loan. Your Monthly payments will go up, but you will be able to save more in interest payments. Moreover, you'll be debt free sooner.
• You need extra cash to pay off credit cards:
  If you have enough equity in your home, you can refinance and borrow more than the current loan balance. With the extra money, you can pay off high interest debts such as credit card balances or installment loans. This refinance loan may be tax deductible under certain conditions.
• You wish to consolidate 2 loans into one:
  If there's enough equity (due to high appreciation), you can consolidate a 1st and 2nd mortgage into a single mortgage. The monthly payment on the new loan might be lower than the combined payments on the first loan and the second mortgage.
• You want to convert an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM):
  A FRM prevents the lender from increasing your monthly interest payments over the life of the loan, unlike with an ARM. This means your monthly payments will remain the same.

When to refinance mortgage

"Should I refinance my house now?" – This is what most people ask when they're looking to reduce their mortgage payments by taking advantage of low rates. To find the answer, check out the mortgage refinance tips below:

• Build up equity:
  You can refinance when you have built up at least 10% equity in your home (Fannie Mae owned mortgages, require 5% equity). It is possible for you to refinance if you have less than 5% equity, but you may have to pay a certain amount of money in order to make up the difference in equity.
• Check if mortgage refinance interest rates are low:
  It's better to follow the 2% Rule. The 2% Rule allows you to enjoy the benefits of home refinance if the refinance interest rate is 2% lower than your current loan's interest rate. The savings in interest will help you recoup the costs of the new loan, provided you aren't planning to move soon (the break-even period). However, there are no-cost as well as low-cost refinance loans where the costs of getting the loan are included. However, these loans have comparatively higher rates than loans that do not include the refinance costs and your options are limited when the credit market is experiencing a slump. Learn more about the when to refinance rule of thumb.  
  
  As per this rule, if your rate on the mortgage is reduced by at least 2% then only you should refinance to get a benefit.
  As always, compare mortgage refinance interest rates offered by different lenders in order to get the best interest rate. This will help you save more over the life of the loan.
• Pay off any late payments:
  There is no such limit on the number of times you can go for home refinance loans. Most lenders prefer that you have no late payments in the last 12 months before you refinance.
• Remove negatives and improve your credit score:
  Get your credit report from the bureaus and review it for any negative items (late payments, collections, etc) and inaccurate items. Dispute any inaccurate items and remove them from the report. Pay off as much of your debt as you can. Otherwise, you won't get a low interest rate and may not even qualify for a refinance loan. Of course, there are lenders in the subprime lending market who may offer you a mortgage refinance loan, but it's better to avoid them as they'll charge higher interest rates and fees and could be fraudulent.

When NOT to refinance

Refinancing is not a good idea if:

• Your property value has gone down:
  If your property value goes down and you refinance up to 80% of the appraised value, your original mortgage amount may be higher than the amount you borrow. Therefore, the new loan will not be enough to pay down the existing one.
• You have been paying off the first loan for a long time:
  If you are almost finished paying off a 30 year fixed mortgage, then refinancing is not a good idea. You will lose equity in proportion to the amount you borrow over and above the remaining loan amount.
• You have used up enough equity:
  Refinancing is not a good idea if you have already reduced the amount of your equity by taking out a 2nd mortgage or a home equity loan. Refinance loans for 100% of the loan are rare, and with the mortgage market currently in a crisis, are hard to find.
• You have a few years left on the current loan:
  If there are only a few years left on your current loan, then refinancing is not a good idea. Taking out a new loan will only put you deeper into debt just when you were about to become debt free.

Refinancing makes sense for the right reasons and at the right time. You need to decide whether to opt for a simple interest rate adjustment refinance or a refinance that will provide you with extra money. If you'd like to check out what mortgage refinance rates and terms are currently available, request a no-obligation free mortgage refinance quotes from our community lenders and brokers.

What should I bring with me to meet with my Loan Officer?

You want to be prepared when you meet with your Loan Officer, they will need to do a pre-approval and check your credit, income and assets.

If you are buying you will need the following:  (If they apply to you)

1. Last 30 days pay-stubs
2. W2's for the last 2 years
3. If Self-employed Last 2 years of Tax Returns with all Schedules, you will most likely need to provide personal Tax Returns and Corporation or Partnership
4. If Self-Employed you'll need to will need a Year to date Profit and loss statement
5. Last 2 Months Statements of your Assets (Bank Statements, IRA, 401K, Life Insurance, Money Market accounts, etc.)
6. Child Support or Maintenance Court Order
7. Social Security Award Letter and last 2 years 1099
8. Social Security Number
9. Date of Birth
10. Address history for the last two years

If you are refinancing you will need all of the above plus:

1. Information for Taxes and Insurance for the homes you own
2. Mortgage Statement

If you rent you will need to provide your Landlord's information, phone number and Name.

Also, you will need to know your automobiles make, year and value.  Personal Property value and any other assets you may have.

Please take in consideration that every lender will require different things, these are just some or more of the requirements you will be asked for.

Be prepared to pay an application fee.  Most institutions charge an Application that varies between $500 - $700  Sometimes that covers for your appraisal and credit report, but not all the times and at times it is Non-Refundable, so ask your lender about the Application Fee. 

Refinancing your Mortgage Loan

A mortgage refinance refers to applying for another mortgage to replace an existing mortgage on the property. There are many reasons why borrowers decide to refinance their homes:

*  Reduce interest costs with a lower interest rate
*  Reducing the risk from an adjustable-rate by switching to a fixed-rate loan
*  Liquidating equity into cash (Cash-Out Refinance)
*  Increasing the loan term and reducing Monthly payments
*  Decreasing the loan term
*  To get rid of Mortgage Insurance
Among some of them...


A mortgage refinance has the same costs as a mortgage, such as loan application fees, loan origination fees and appraisal fees that must be taken into consideration. Depending on the equity and Loan to value homeowners have the option to pay these costs upfront, or finance them, in the long run a refinance with a lower interest rate is likely to save more money. Overall, when refinancing for a lower interest rate, the main deciding factor is if savings on interest will be greater than the total refinance costs and prepayment penalties if needed.


Some loans, especially fixed-rate mortgages, have a prepayment penalty to discourage borrowers from terminating their mortgage early by paying off the remainder of the loan early.  Homeowners will need to calculate the total cost of refinancing their home to decide if it is the best option. Many financial advisors suggest that homeowners look for at least a two-percentage point reduction in their mortgage prior to refinancing. Homeowners can also use online mortgage calculators to get a better estimate of how much they can save by refinancing. However, online mortgage calculators usually do not take into account all the costs incurred with a mortgage refinance. 


http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

Homeowners who plan on a cash-out mortgage refinance to liquidate equity for home remodeling, large expenses, credit-card debt elimination, debt consolidation, or any major expense might benefit from consulting a financial advisor.  With a cash-out mortgage refinance, homeowners are refinancing their existing mortgage with a higher borrowed amount. This results in a single loan and loan payments that can be stretched over a long term. Homeowners are also advised to see if there are any stipulations or requirements set by their lender prior to refinancing their home. 


For example, the Federal Housing Administration has several requirements for cash-out mortgage refinances on their loans, including loan limits, the amount of equity that can be cashed-out, and qualification and eligibility requirements. Besides a cash-out mortgage refinance, there are also other options available to homeowners looking to free up equity. Homeowners can also take advantage of other mortgage products such as a Home Equity Loan or home equity line of credit (HELOC), which generally have more flexible spending and repayment options.