Refinance your home mortgage. Those words produce several questions. Here are three big ones....
1.) Should you refinance?
2.) Can you refinance?
3.) If you answered "yes" to the first two questions, what do you need to know?
Here are some mortgage loan tips based on my decade as a mortgage broker. As with many of the pages on this website, much of what you read will be different than the same old tired advice. Personal accountability and preparation for the future are always the underlying theme.
The tips about closing costs will apply to new mortgages as well.
Whether or not you should refinance your home mortgage depends on your financial plans and goals. You do have them written down? Don't you?
The old standard theory was that if you could lower the interest rate by 1%, it was a good idea to refinance. That plan is great for the mortgage broker or the bank, but how about for you?
I would say that 1% drop is not always enough of a reason. How much will it cost you to get that lower rate. Are you aware in advance of all the loan costs? Do you even know if they are required fees to process the loan or are they just pocket liners for the guy writing the loan?
Some fairly recent legislation attempts to require more transparency in advance of closing a loan. But if you don't know what should be on there, do you really know if the costs are necessary? And remember, most of the Dodd-Frank Act was written by bankers.
How long will it take you to re-coup those new loan costs? The reason to refinance your home mortgage is to save money. It is not to pile a very large amount of extra dollars onto the mortgage balance just so you can pay less each month. Not at the expense of paying for many more months.
Question two is very relevant right now. We all know about the sub prime loans that allowed people to get into adjustable rate mortgages even with bad credit. That could be an entire page all by itself.
There is one big reason why you may be unable to refinance your home mortgage. That reason would be sinking home values. And the number one cause for that problem is job losses. Home values are based on income potential. No income, no ability to buy. Less people with the means to buy means houses sit longer on the market or just don't sell at all. And if they finally sell, it is for far less than the previous "market value."
And in my opinion, in most parts of the country we haven't seen the bottom of the housing market value drop. I know that realtors will paint a rosy picture, but until jobs are really coming back, we are in trouble on the housing front. Big trouble.
There is a massive list of bank owned houses being held off the market. It is called shadow inventory. If they were all put out there, the market would flatten immediately. In my opinion, those houses should be released anyway. The sooner we face that problem head on, the sooner it will be cleared up. Holding back properties and bleeding them into the market is just kicking the problem down the road even further.
It will hurt, but it is going to hurt anyway. Better to get the real recovery started now rather than delaying the inevitable.
If you are able to refinance your home mortgage because it really makes sense to do so, the big thing now is to know what you will be facing. You need to know the exact cost of your refinance. And I mean every single line. Lenders must provide you a Good Faith Estimate. And they cannot vary by much from the first look right through the closing.
Mortgage fraud comes in many forms. The old ways of adding costs at the closing table have been pretty much eliminated. But putting in "junk fees" right off the bat adds many dollars into a lenders pocket. And they are your dollars. And remember, on a personal home loan refinance, you get three days after the actual closing to review the documents you signed. During that rescission period you can change your mind and not go through with the loan.
Be sure to question the rate every time. Lenders or mortgage brokers that sell their loans on the secondary market get paid more by selling you a higher rate. Ask what the PAR rate is on your mortgage. Lenders should make some profit. It is a business for them. But you shouldn't be gouged either.
Competition is a consumers best friend. Compare offers in detail. You need to take care of your money. Ask questions and demand answers.
A couple more points for your consideration. What about a bi-weekly mortgage? It will lower the actual out of pocket money on your mortgage. You only pay interest on unpaid principle. However you can get the same result by simply making one more payment per year.
I would suggest that if you can afford it, add $100 or $200 per month to principle each month. You will be amazed at how quickly you reduce the loan balance. You may not not even need to refinance with this option.
I loved my time as a mortgage broker. My entire business was built by referral. Satisfied people telling others that I would be honest with them and protect their money. I told many people that a loan they were considering was not in their best interests. I know some just went around the corner to a broker more than willing to put them into a bad loan and pocket the fees. But doing what is right because it is right is that critical rule of business ethics.
Feel free to contact me with questions. I will do my very best to help you protect your money as well. Deciding to refinance your home mortgage should be a stress free process. And it can be that way with accurate information.