Finance articles and news

By Chris Edison

Getting a refinance on your mortgage is common practice nowadays due to the drop in interest rates and the receptiveness of borrowers toward the idea of refinancing. Although many have vouched for its benefits, house owners should evaluate their personal preferences, financial standing, and current mortgage status and compare these with the various options available before planning their next move.

There are many facts surrounding the concept of refinancing and this article will provide you with an insight of important aspects which you need to know in order to make an informed decision. Refinancing your mortgage is for the long-term and thus needs to be a choice that is thoroughly considered.

1. Penalty Costs
The process of refinancing basically means paying off your current mortgage and obtaining another mortgage at a different interest rate (usually at an adjustable rate) and loan term. This causes penalty costs to be imposed on your current mortgage by your current lender, as you have opted to pay off your loan earlier than agreed upon. Occasionally, depending on the status of your current loan, penalties incurred may be higher than the cost savings obtained from refinancing your mortgage, therefore making the idea of refinancing no longer attractive.

2. Savings on monthly repayments
When you refinance your mortgage, you may most likely switch to a new mortgage structure that will benefit you in the long run, especially with lower monthly repayments. With the availability of Adjustable Rate Mortgages, interests incurred are relatively lower than the traditional Fixed Rate Mortgages, which has been incentive enough for home owners to switch their mortgage loan plans. However, although interest rates may seem to be lower at first glance, home buyers should practice due diligence in tabulating the actual amounts paid over the long term in comparison with their current mortgage repayments.

3. Transactions costs
As with any mortgage transactions, a refinancing exercise will involve transaction costs such as attorney fees, points, appraisal fees, inspection fees and prepayment penalties. All these hike up the cost of refinancing, which need to be balanced out with the cost savings obtained from switching loans in the first place. As a rule of thumb, if you plan to stay in your current property for the long-term, transaction costs will be offset with savings in repayment amounts over the long-run. Therefore, refinancing will then be a good option for you.

4. Tax deduction possible
Refinancing may help you regain tax deductions on interest if you have already used up your allocated amount for tax deductions. Therefore, with a new mortgage, you will be able to deduct interests paid from your taxable income, thus helping to reduce your taxes payable.

5. Get cash out of your equity
If you have paid up most of your outstanding equity, refinancing will be a good way for you to acquire cash out of your high value equity, incorporating increases in the market value of your property as well. This way, you will have the flexibility to use the extra cash for children education, short term debt repayments or renovations.

6. Increase your home equity
On the flip side, refinancing your mortgage can also work for you if you decide to pay more on monthly repayments and pay off your home equity within a shorter period of time. Another benefit of a shorter loan term is the cost savings gained from lesser total interests paid to the lender.

7. Alternatives to refinancing
Refinancing may not always be the only option for everyone. Other financing products such as a home equity line, allows you to keep your current mortgage but instead have the flexibility to withdraw up to a certain percentage of the current value of your home equity, minus the unpaid portion of your equity. Interests are only charged on the amount withdrawn and not on the approved line of credit. Another option would be to take up a second mortgage, which will be based on a shorter loan term, but with higher interest rates.
Source

When mortgage rates dropped to the lowest levels in almost a year, Warren Zeger seized the opportunity to slash $720 off his monthly mortgage payment by refinancing his home in Potomac, Md.

Just don’t expect him to spend the savings.

“I’d love to tell you I’m going to spend it to help prop up the economy, but we’ve tightened our belts,” said Zeger, 61, a retired attorney. “I plan on holding on to it.”

Zeger echoed homeowners The Associated Press interviewed nationwide who have taken advantage of lower rates since Nov. 25th. They planned to stuff the money they saved under the mattress or pay off bills. Refiinance activity has surged as interest rates tumbled about 1 percentage point to around 5.5 percent in response to the Federal Reserve’s plan to scoop up $600 billion of mortgage-related securities.

“We’ve had a lot homeowners waiting for some time” for this drop in rates, said Ritch Workman, co-owner of Workman Mortgage in Melbourne, Fla.

The Fed’s move was the latest in an unprecedented series of actions to help stabilize the housing and credit markets as well as the broader economy. However, pushing down mortgage rates may only have a muted effect on the economy. That’s because more than a quarter of homeowners with a mortgage can’t qualify for a new loan, and many who can are so financially stretched that little of the money they save will end up in store cash registers.

“If you’re worried about making it month to month and your mortgage is your biggest payment you’re not going out to buy a car and a lot of Christmas gifts,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication in Bethesda, Md.

Stuart Cassell in Sarasota, Fla., is putting his $80 monthly refinanse savings into his nest egg, while product development manager Subash Ramnani in Chicago is using the extra $300 a month from his refinancing to pay for graduate school. Jennifer Burke and her husband in Bel Air, Md., are saving the additional $240 a month as they wait out the recession and raise a one-year-old daughter.

Marcus Leef’s $150 monthly savings is going to daycare costs and personal savings. Leef, a consultant in Hartford County, Conn., has seen his stock portfolio plummet 40 percent, his retirement savings plunge by half and his corporate stock tumble by 60 percent this year. He’s not optimistic.

“My view is the economy is in the toilet. It’s going to get worse before it gets better,” he said. “If rates drop another point tomorrow, I’ll (refinance) again the day after.”

Those are the luckiest homeowners. Les Berman, a mortgage broker in Encino, Calif., said most borrowers contacting him have interest-only mortgages and they want to lock into a fixed-rate loan. They’re not saving any money each month if they do that; instead, they’re taking higher payments to get out of riskier loans.

“They want that security. They want to protect themselves against the future,” he said, even if it means shelling out more each month.

Other borrowers, like Eric Dudek in Grand Rapids, Mich., are waiting to see if rates drop further after hearing reports that the government is considering a proposal to lower the rate on 30-year home loans to 4.5 percent by buying more mortgage-backed securities.

“I’m thinking maybe I should hold off, you know?” said Dudek, who would use the savings from a refinancing to pay off student loans.

But he could be waiting in vain because the plan is only expected to apply to purchase loans, not refinance loans. Either way, most borrowers will need more than just lower interest rates to solve their problems.

Brokers are turning away thousands of borrowers because they just won’t qualify for a refinancing. Pava Leyrer, president of Heritage National Mortgage in Michigan, said about 40 percent of the homeowners calling her likely won’t get a refinance because of falling home values, credit issues and job loss.

Likewise, Brad Cohen, vice president of Mason Dixon Funding in Rockville, Md., said as many as two-thirds of borrowers he’s talked to don’t qualify because they owe more on their mortgage than their house is worth.

An estimated 12 million U.S. homeowners are in that situation and declining home prices only exacerbate their situations. Low interest rates won’t be enough and if they fall into default or foreclosure, that will only make the current financial crisis worse.

“There’s no plan in place to help them right now,” Cohen said.

AP Real Estate Writer Alan Zibel in Washington, D.C., contributed to this report.
Google news
Article source

Before making that big decision to refinance your home or purchase a new one with a good mortgage deal, it is always best to investigate and examine mortgage lending companies, their track record and current financial status. And while the interest rates and payment terms that are being offered are just as important, it is always best to work with mortgage lenders and financial institutions that your can trust and rely on.

Compare mortgage lenders based on the length of time that they have been in the business as well as the number of clients they currently have. Know their track records. Take notice of the banks that they do business with to make sure that they are stable lenders with stable banks to back them up.

Of course, as most people would first consider in choosing their lending companies, compare mortgage lenders based on the deals they offer. Most of the time it is not just good to check out which rates are more competitive.

Do not forget that there may be deals that are too good to be true but will turn out to be nightmares in the end. There are good online resources and mortgage calculators that allow you to compare mortgage deals effectively. Make sure that you avail of deals that are not only reasonable but are well within your financial capability to pay, after you have taken due notice of your regular expenses.

Get recommendations and testimonials. Scrounge around for feedback, both good and bad, on the mortgage companies that you are considering before closing a deal.

You need to read Part Two of Compare Mortgage Lenders before you decide on a Mortgage Lender.

For all your Mortgage Advice, Go to… TopMortgageAdvice.com

Article Source: http://EzineArticles.com/?expert=Darryl_Power