A mortgage refinance is very important, because the interest rates have been at histoic lowes for so long.  Everyday, it seems I hear more and more that the interest rates will increase later this year, because the government has announced they will taper off the purchase of mortgage backed securities.  This action will have a direct affect on mortgage rates.

The best mortgage advice I can give about a refinance, would be to ask yourself this question, “How long do I plan on having this mortgage?”

This is one of the most important questions, because the amount of costs you are paying for a refinance and the amount of interest you will save by lowering your rate can all be justifiyed by the amount of time you will have this mortgage.

If you are unsure on how long you will own the home, then figure out a minimum amount of years you plan on owning and base your number on the minimum.  If you have a range of 7-10 years, then count on having the mortgage for 7 years and that’s it.  It’s best to play it safe versus taking a gamble, because we all know life happens and you may not end up owning the home for the latter part of the range.

Once you have figured out how many years you plan on having the mortgage, then it’s time to figure out when the savings makes sense to refinance.

Here is a post that helps explain when a mortgage refinance makes sense:  

When Should I Refinance My Mortgage?

10 Easy Ways to Streamline Refinancing a Mortgage

As with many things, refinancing can be broken down into a series of smaller steps, each of which is fairly simple on its own. For example, the following are ten tips that can help anyone refinance a mortgage successfully: 

1. Specify the reasons for refinancing. Is the purpose of this refinancing to lower the interest rate, reduce the monthly payment, or lock in a fixed monthly payment? The type and terms of the refinance mortgage needed will depend on which of these–or which combination of these–goals is in play.
2. Define the refinance mortgage parameters. Based on the above goals, set targets for interest rates and monthly payments. Decide on the mortgage term and whether to apply for a fixed or adjustable-rate mortgage. A refinance mortgage calculator can help define these parameters.
3. Check your credit rating. In particular, find out whether it has changed since you last applied for a mortgage. A low credit rating will affect the interest rate and the availability of a refinance mortgage.
4. Determine changes in property value. A drastic drop in property value can make it difficult to refinance a mortgage unless that mortgage is old enough to have been paid down substantially.
5. Research prepayment penalties on the existing mortgage. Some mortgages have penalties for early repayment, which includes refinancing. This is not necessarily a deal-killer, but it is important to know the amount of any penalty so it can be measured against the potential savings from refinancing. Also, the original lender might waive this fee if they handle the refinancing.
6. Obtain refinance mortgage quotes from a variety of refinance mortgage lenders. Mortgage rates and lending standards vary from institution to another, so it is well worth researching multiple refinance mortgage lenders.
7. Ask lenders for full disclosure of points, closing costs, and other fees. This will help with setting up apples-to-apples comparisons between refinance mortgage lenders. For example, the lender offering the lowest interest rate may also be charging the most in points. Try to request quotes with as nearly identical terms as possible for comparison purposes.
8. Ask lenders how long they will commit to their rate quotes. Lenders can’t offer the same rate indefinitely, but they may commit to locking in a rate for a reasonable period of time to allow for the application process.
9. Use a mortgage calculator to compare monthly payment savings with closing costs and other upfront fees. Besides comparing refinance mortgage quotes against each other, also compare them against your existing mortgage. It is likely that there will be a trade-off between paying upfront expenses to refinance a mortgage and achieving a savings in subsequent monthly payments. It is important to make sure the savings in monthly payments will, in time, adequately compensate for the upfront costs.
10. Check for any prepayment penalties in the refinance mortgage. As mentioned in tip #5, prepayment penalties can dampen the benefits of refinancing. Since another refinancing opportunity may arise in the future, it would be helpful to avoid prepayment penalties in the refinance mortgage.

Provided by:

http://www.guidetolenders.com/refinance_mortgage/articles/top-ten-refinancing-tips.jsp?&CCID=20100682203554106&QTR=ZZf201001031544010Za20100682Zg172Zw53Zm617Zc203554106Zs4614ZZ&CLK=806100109072611564&&exp=y

The ups and the downs…the ups and the down!

The mortgage rates continue on their typical roller coaster ride over the last few weeks.  At one point, we saw lenders at 4.5% on a 30 year fixed rate, then about a week ago the 30 year fixed rate was at 5.5%.  What a difference that can make on your mortgage payment!

Some of the best advice you will read about refinancing your mortgage will talk about lowering the interest rate.  Yes, low interest rates are what you should focus on, but don’t forget the many factors that should go into figuring out if a refinance benefits your situation.

What to focus on when looking to refinance.

Most of us live our lives month to month.  Why?  Our bills are due once a month and bills are a major part of our everyday life.  Because of this, most people just focus on the new monthly payment the mortgage refinance will give them.  There are other things you need to factor into your decision on whether or not you are going to refinance.

Here they are:

The amount of interest you will be saving over the life of the loan.

It’s a beautiful thing to be able to save $100 dollars a month on your mortgage payment.  That’s $1200 per year!  That’s a pretty nice savings.  Now, the amount of interest you will save over that first year will be in the thousands!  Tens of thousands over the many years you will have the loan.

Here is a good example of how much interest you can save with a refinance.

The amount of years you could reduce from the mortgage term.

This is something most people don’t even realize when they go to refinance their mortgage loan.  Some lenders will be able to put you in a 25 or 20 year mortgage loan and the interest rate is about the same.

For example, on a 150k mortgage at 5.5% on a 30 year, the payment would be $1135.58 (just principal and interest).  On a 25 year loan with the same terms, the payment is $1228.17.  That difference is only $92.59 per month!

Most of us won’t even consider refinancing the mortgage without saving $100 per month, so if you don’t need the savings, then reduce your term by 5 years.  You’ll be 5 years closer to the American Dream…owning a home free and clear!

 The amount of closing costs vs the interest rate.

Most lenders will be able to offer you higher closing costs for a lower interest rate.  Sometimes you can take a higher rate in exchange for lower closing costs.  You should take the time to look into paying more costs for a lower interest rate. 

If you have some equity in your home, you can even include those extra costs into the loan, so you don’t have to come out of pocket for those extra costs.  Take the time to figure out the amount of interest you will be saving, because if you are going to be in the home for the next 10 years or more, it could make a lot of sense to pay for a lower interest rate.  Here is a post that goes over an example on the amount of interest saved with a lower interest rate.

When looking at refinancing your mortgage, keep in mind that there are multiple factors when looking at the benefits of your refinance.

Don’t forget to check your credit report before applying for the refinance!

I’ve been getting this question a lot lately, and mostly because of how low the interest rates have been.

The general rule of thumb most of us have heard is to reduce your interest rate by 1% or more.  Well, this isn’t always the case, because what’s more important is how much interest you will be saving and how long you will have the mortgage.

Here is an example of a person reducing their mortgage interest rate by 1%:

Current Loan Details:
- $200,000 loan balance
- 6% interest rate
- 30 year fixed rate
- $1199.10 monthly payment (principal & interest)
- $231,677.04 is the total amount of interest that will be paid over the 30 years.

New Loan Details:
- $200,000 loan balance
- 5% interest rate
- 30 year fixed rate
- $1073.64 monthly payment (principal & interest)
- $186,513.24 is the total amount of interest that will be paid over the 30 years.

These are the two major benefits for doing this refinance:

1. The monthly payment is reduced by $125.46
2. The total amount of interest saved over the 30 years is $45,163.80.  Wow!

Now, this example is best followed if you plan on having your current mortgage for all 30 years.  The reality is that most of use will either move and buy a new home or refinance again sometime in the future.  So, an important thing to ask yourself is: “How long do I plan on keeping this mortgage?”

Let’s say you and your family plan on buying a new home in about 1 year, but are looking into refinancing into a lower rate because the rates are so low.  Using the example above, you are saving $125.46 every month, so the total amount of monthly savings over the next year is $1505.52.  If the closing costs for the refinance is $2000, most people would think it’s not worth it.  Why should you pay $2000 to save $1505.52 for that year?  Well, at first it may seem like that, but don’t forget about how much you are saving on the interest as well.

Using the same example above, the amount of interest you pay over the first year of your current loan is $11,933.19.  The amount of interest you pay over the first year of you new loan is $9,933.00.  That is an interest savings of $2000.19 over that one year.

Most people tend to forget how much interest they save when they lower their mortgage interest with a refinance.  Yes, it’s nice to recoupe the closing costs with the amount of savings every month, but the total amount you have to pay back to the lender in interest is just, if not more, important when looking to refinance.

Don’t forget to check own credit report before looking at refinancing.  If you already know what kind of credit you are working with, this gives you a bit more leverage when trying to negotiate the best interest rate available.  Checking your credit report before hand is also good for those that dont’ have the best credit, because then you can focus on working on fixing the credit report.

Your goal is to do whatever you can to pay the least amount of interest on the largest loan you will probably have your entire life.

This question has been very popular among the people looking to refinance, since the mortgage rates continue to be at historic lows.  (I heard that someone locked in at 4.5% the other day…)

In all reality, there are two main things to consider when deciding on a 30 year mortgage versus a 15 year mortgage.

1.  The difference in monthly payment.

Consider the fact that the minimum payment on a 15 year mortgage will be higher than the 30 year mortgage.  If you are financially in a position to comfortably make the minimum payment on the 15 year, then we highly recommend the doing the 15 year mortgage.  Now, keep in mind the 30 year mortgage has a lower minimum payment.  If you are doing a standard conventional mortgage, it will not have a prepayment penalty for paying down or paying off the mortgage early.  So, it might be a good idea to go ahead with the 30 year and make larger payments when you can afford them, since there is no penalty for those extra payments or early payoff.

2.  The amount of interest you save over the life of the mortgage.

We are going to use this example to show some numbers: 
$200,000 mortgage at a 5.0% interest rate for both the 30 year and 15 year.

The total amount of interest you will pay over the life of a 30 year mortgage is $186,513.24
The total amount of interest you will pay over the life of a 15 year mortgage is $84,685.48

That’s a whopping $101,827.76 difference in interest you will pay!!

Ok, ok, I know what you are thinking and that’s “I probably won’t stay in this house for 30 or even 15 years”.  That’s ok, we’ve given an example of more real numbers.

The total amount of interest you will pay in the first 5 years of a 30 year mortgage is $48,076.13
The total amount of interest you will pay in the first 5 years of a 15 year mortgage is $44,009.37

That difference is $4,066.76.  Yes, just in the first five years of your mortgage you will save $4066.76, when you choose the 15 year mortgage versus the 30 year mortgage.  Again, if you can afford the 15 year mortgage payment, we highly recommend paying less interest over the life of the mortgage loan.

Here is something else to think about when deciding.  This is an example of how much more you will pay down your mortgage balance when deciding on the 3o year mortgage versus the 15 year mortgage.

Example:
You have a $150,000 loan amount and the interest rate is 5.0% on a 30 year mortgage. 

The principal and interest payment is $805.23.  Of that $805.23 payment, only $180.23 goes toward the principal balance of your mortgage loan.

Now, compare the same loan amount and interest rate on a 15 year mortgage.  The principal and interest payment is $1186.19.  Of that $1186.19 payment, $561.19 goes towards the principal balance of your mortgage loan.

In a full amortization schedule, the amount of your payment that goes towards principal increases each month.  For the sake of simple numbers, let’s assume the same amount of principal goes towards your balance each and every month.  Using the example of $150,000, the difference in the principal is $380.96.  ($561.19 – $180.23 = $380.96)  If you took $380.96 over the next year, that would equal $4571.52.  Over 5 years, that would be a whopping $22,857.60!!  Yes, that is how much you would reduce your mortgage balance over the next 5 years, using the example above.

We always recommend a 15 year mortgage, for another reason that you will pay down your mortgage balance faster.  Also, you usually get a lower interest rate on the 15 year mortgage versus the 30 year mortgage, so you will be paying less interest over the life of the mortgage as well.