Refinancing A Home Loan


Historically low mortgage rates make now the best time to refinance a mortgage loan. Refinancing your mortgage now makes good financial sense: if interest rates have declined since you originally financed a home with a fixed rate mortgage, you could save money with today's refinance rates. Even if you've refinanced in the past year or two, refinancing a mortgage now can save additional hard-earned money every month. Selecting the best loan for your financial goals and situation is essential before taking this important step.

Mortgage Refinancing

Choosing the right fixed or adjustable-rate (ARM) for your needs requires a thorough comparison of costs, including points, front-end costs and other fees and expenses.

Today's Mortgage Refinance Opportunities

An experienced mortgage broker provides invaluable understanding of the local housing market and introduces lenders interested in helping you refinance an existing mortgage loan. His insight helps you compare and contrast the potential refinance offers available in the market. If yours is a “special situation” refinance--such as a "problem" real estate appraisal or previous low to no-doc loan, don't go it alone. Discuss these key questions and others with your adviser:

Why do I need more than one refinance offer? I've seen the low advertised rates published by banks in my area.

Homeowners are often surprised to know that thousands of mortgage programs compete for their business. Of course, not all programs are suitable for every borrower. The borrower may have good or bad credit, or somewhere in between. Comparing multiple opportunities to refinance offers peace of mind. There's absolutely no reason to pay more than necessary to refinance your home.

According to Inside Mortgage Finance, homeowners refinanced their mortgages at a higher run rate than at any time since 2010. Interest rates may rise in the future from today's low rates.

You won't know the available market for your business without comparing various lenders and mortgage loan programs. Contact a mortgage broker now to get started!

Why should I be interested in "limited programs" to refinance my home?

Community banks and credit unions, especially those committed to a neighborhood in the midst of positive change, may offer special rates and programs. These banks make an investment in the community by holding your mortgage loan in the portfolio (that is, reselling your loan after they originate isn't the first priority). The refinance rate, combined with the importance of investing in community, may appeal to you.

How important is my credit score right now? After all, I already have a mortgage loan?

Your FICO credit score remains very important to new lenders. Before you start shopping to refinance your current mortgage, checking your credit profile is a good idea. Even the three largest national credit reporting organizations (CROs)—Experian, TransUnion and Equifax—occasionally publish credit report errors.

Asking the credit reporting organization to correct errors before refinancing your mortgage may save you money. Fifty to one hundred basis points' difference in your FICO score, e.g. 550 to 650, can cost hundreds of dollars more in every month mortgage payment. To get the best possible refinance rate, check your credit score or ask your mortgage broker about how credit repair may help your application.

I called a bank about an advertised refinance program and was told the program was already closed. What happened?

The window of opportunity for some rate programs may be short. That's another reason to work with an experienced mortgage broker.

A lender mentioned that my debt-to-income ratio is too high. How much money can I borrow to refinance my home?

Lenders compute the debt-to-income by dividing before-tax income to your total debt amount. Total debt includes items like student or car loan payments.

Lenders like to see that you've got money left over after paying your mortgage, so if your mortgage amount is greater than 25-30 percent per month, depending on your home market, they may express concern. Finding a lender to refinance a higher debt-to-income ratio may be possible.

Why does the lender want to see that I have equity in my home? I'm still making regular mortgage payments on my original loan.

Most homeowners originally offered a down-payment on their original mortgage loan. When the home's value declines, that affects current equity levels. Ask a mortgage broker about programs that may apply to your situation, including the Home Affordable Refinance Program.

I have bad credit, and my FICO score is less than 500. What can I do to refinance my original mortgage loan?

Refinancing an existing mortgage can be difficult due to foreclosure or bankruptcy, or bad credit in general. Excessive late payments on revolving consumer debt hurt your credit score. Many mortgage lenders focus on only traditional and conforming mortgage loans. If you've got an adjustable or variable-rate mortgage, perhaps your rates keep going up while published mortgage rates are going down.

An experienced mortgage broker can help you evaluate the complete financial picture. Catching up on any late mortgage payments (if foreclosure looms or mortgage payments are up to 120 days in arrears) and getting a handle on personal and credit card debt is essential. Finding a new lender—to provide a clean, fresh start with refinancing—is an important consideration, too. Special situations, like bad credit, won't receive positive consideration by traditional refinance lenders.

One refinance solution may include the "hard equity" in your home, according to author Ralph Abbott in "Private Mortgage Investment." (2012) If you've owned your home for some time--and a qualified real estate professional says your home equity has increased by at least 30-40 percent--a special situations lender can save you money.

Refinancing your existing mortgage, even if your FICO credit score is less than 500, is possible. A special situation loan can also help homeowners remove tax liens or avoid foreclosure.

Author Manny Kagan ("The Mortgage Game," 2012) mentions that homeowners refinancing jumbo--and even super-jumbo--mortgage loans may benefit from hard equity lenders. Refinance options vary by lender. Debt consolidation, in which the borrower is required to pay off existing debts before receiving lender is approval, may be required.

I am self-employed. Can I refinance?

Self-employment can be looked upon less favorably by lenders than reliable employment. Your experienced mortgage broker helps to identify those lenders most likely to approve your refinance request.

Other factors, including your FICO score and ability to demonstrate years of stable earnings history. Paying off existing debts prior to requesting a mortgage refinance also helps to improve your debt-to-income ratio.

Today's mortgage rates help homeowners to save both time and money. Locking in a fixed low refinance rate can sometimes help you own a home sooner. Bad credit, or a history of bankruptcy or foreclosure, doesn't mean you can't refinance at a lower mortgage rate. Frank discussion with your adviser can save thousands of dollars over the life of your mortgage loan.

Learn about getting a Home Inspection.