REFINANCE:
What you need to know about refinancing your home loan

Since I am not in the business of giving tax advise, make sure you talk with your tax planner or accountant about any possible deductions.

Another way to make a refinance work for you is to refinance for more than the balance remaining on your old mortgage -- in effect, tapping your home equity, or "cashing out," in mortgage speak. Thanks to favorable rates, you may be able to do so without boosting your monthly outlay. For example, at 7.5%, the payment on a $200,000, 30-year fixed-rate mortgage is $1,398. But at 6.5%, that same payment lets you borrow $20,000 more.

Probably the main reason people get cash out is to consolidate higher rate bills. Not only can you get a lower rate by refinancing these into your new mortgage, but you also may be able to deduct the interest that you pay as well. However, as long as your debt to income ratio is in line, you can have your choice of how you want to spend any additional cash you get from refinancing. I've made numerous cash out loans for all kinds of purposes. Things like paying taxes, funding the children's college, even buying a new boat.

There are no fixed rules when you get cash out on a refinance. The best bet is to discuss with your mortgage broker exactly what you want and he or she should be able to work something out to fit those wants. However, you need to be realistic also. If you need 100% loan-to-value at 6.0% interest rate on a refinance and you have poor credit and can't verify your income, your mortgage broker will work with you, but you may need to adjust your expectations.

If you do happen to have credit issues, there are a few extra steps you need to take:

Document your situation.

Work with someone who has experience working with borrowers that have "less than perfect credit".

Shop around. You will probably need to shop more than someone's with perfect credit who is only interested in the lowest rates.

Be upfront and honest with whoever you choose to work with.

For more information on getting a loan when you have credit issues, please check out the information in the links below.

Click here to complete a mortgage application with a company that has some excellent programs for people with less than perfect credit.

If you're interested in legal and honest ways to repair your credit, click here.


Lastly, I will tell you that I know how sometimes, if you know that you've had credit issues in the past, it may not even seem worth the trouble to complete a mortgage application. My recommendation is don't. Call me directly instead. I can take some basic information over the phone and usually have a fairly good idea as to what I can do for you. If you do happen to reach my voice mail because I'm on another line or in an appointment, please leave me a message with the best time to return your call. You can also send me an e-mail as well.

I will do everything within my power to contact you at the appointed time or as soon as possible. My contact information is at the bottom of this page. Please do not think that just because you need to leave a message that I am too busy to talk to you. I make my living by talking with people who have all sorts of credit and financial issues and I want to hear from you.

With rates so low right now, everyone wants to take advantage of them by refinancing. If you happen to have an adjustable rate loan (ARM), or a delayed adjustable rate loan,(Delayed ARM) from a few years ago, you probably have a great rate right now, or will very soon when you delayed ARM adjusts. However, if you're the type of person who is not totally comfortable with an ARM loan, or your credit wasn't as good as it could have been when you took the ARM out, so your rate isn't as low as it could be, you may be thinking of refinancing that ARM into a fixed rate.

Now is the perfect time to do it because the rates for refinances on fixed rate loans are so attractive now. For some who don't like the idea of an ARM, it may even be worth it to take your ARM at 5% and refinance to a fixed rate at 5.75% just for the peace of mind of knowing it can't change.

On the other hand, if you need the lowest rate possible to get into a new home or think you may be moving or refinancing in a few years anyway, refinancing from a fixed rate to an ARM may be just the right call for you. I've recently closed two loans where the people wanted an ARM for completely different reasons. The first one wanted as low of rate as possible because the first of five kids was starting college and he knows that he'll be calling me back in a couple of years to refinance again. The others are thinking of selling their home in one to two years and want their payment as low as possible in the mean time.

So basically, what I'm saying is that it all depends on YOUR situation. Do what you can to find out the facts about different ARM loans and compare the rates and payments. Don't let a mortgage broker who thinks everyone should be on a fixed rate loan persuade you one way or the other. Explain what you're trying to accomplish with your refinance and if your mortgage broker seems closed minded, find someone else.

In refinancing, a mortgage company usually offers a range of interest rates at different amounts of points. A point equals one percent of the loan amount. For example, three points on a $100,000 mortgage loan would add $3,000 to the refinancing charges.

Analyzing various interest rates and associated points may save you money. As a rule of thumb, each point adds about one-eighth to one-quarter of one percent to the interest rate the mortgage company is offering.

Generally, the lower the interest rate on the loan, the more points the lending institution will charge. Some companies offer refinancing with no points, but generally charge higher interest rates.

To decide what combination of rate and points is best for you, balance the amount you can pay up front with the amount you can pay monthly. The less time that you keep the loan, the more expensive points become. If you plan to stay in your house for a long time, then it may be worthwhile to pay additional points to obtain a lower interest rate.

Some companies may offer to finance the points so that you do not have to pay them up front. This means that the points will be added to your loan balance, and you will pay a finance charge on them. Although this may enable you to get the financing, it also will increase the amount of your monthly payments.

Again, the bottom line is to have a mortgage broker that you feel comfortable with to help you work through these decisions. You need to have someone that will invest the time with you to make sure you have all the knowledge you need to make an informed decision.

To analyze your savings on a refinance, you must take numerous factors into consideration:

1. Old payment vs. new payment

2. If you are getting cash out, what is the money being used for? If you are using it to pay off other bills, this needs to be factored in. In other words, if you are getting an additional $20,000 to pay off other debt, how much are you paying in payments on this other debt? If you are paying $600 per month for this $20,000 in debt and your new loan increases your old mortgage payment by $150, then your monthly savings is $450($600 - $150=$450).

To apply for a debt consolidation loan, click here.

For more information on debt consolidation loans, click here

However, if $7000 of that $20,000 is paying off a car loan that you only have 24 months left to pay on, you have to ask yourself "Is this a good idea?". The reason is because you are taking a 24 month loan and stretching it out over a 30 year period! For some people it makes sense, for others it doesn't. But you need to know these considerations up front in order to make an intelligent decision.

3. How much longer do you plan to stay in your home? Is it is for the foreseeable future or do you think you might move in a couple of years? This is important in evaluating the closing costs and if you should buy the rate down or not.

Now to analyze your savings on a refinance loan, the typical way is to take the total cost of the loan and divide it by the monthly savings. So if you are doing a straight refinancing of your mortgage(no cash out), and your closing costs are $3000, and your monthly savings is $125, simply take the $3000 and divide it by $125. The resulting number, in this case, 24, is how many months you need to keep your loan to cover the closing costs. So in this case, the first two years (24 months) of the savings from the refinance will go to covering the closing costs and the remaining 28 years is pure savings. The rule of thumb is that you want to recoup your closing costs in less than 36 months. So if your closing costs are $3,600 and your savings is $100 per month, you will recoup your closing costs in 36 months. This may be a loan that you want to give additional consideration to to see if it is in your best interest.

For more detailed information on closing costs and their impact on your decision, click here

The difficult part of analyzing your savings from a refinance comes when you are getting addition cash out, even if it's to pay off other bills. In this case you need to weigh your need for a lower payment (in the paying off other bills scenario) to how you feel about stretching your bills out over a 30 year term. If you are getting additional money from the refinance to cover the cost of college or a home improvement or any other reason, you really can't factor in savings into the deciding factor. You should weigh your desire for whatever it is you plan to do with the money to the cost of the loan, and whether or not you're getting a lower rate compared to your current mortgage.

Again, the bottom line is to give your needs and wants some considerable thought and then finding a person that you feel comfortable working with and expressing those thought to that person. He or she should then do everything possible to meet those desires. That's what you are paying for after all.

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