Mortgage refinancing can save you money if you get a better deal on the new loan. There are a number of expensive pitfalls you need to avoid that can result in overpaying thousands of dollars when refinancing. Here are several tips to help you avoid paying too much when refinancing your mortgage.Beware Yield Spread Premium (YSP)Most homeowners have never heard of YSP and don’t realize they’ve been paying it since purchasing their homes. Yield Spread Premium is the markup your loan originator adds to your interest rate to get a commission from the lender behind your mortgage. This commission can be as high as 3% of your loan amount and results in paying an above market interest rate for the entire duration of your loan.Why do mortgage brokers charge Yield Spread Premium? Your broker marks up the interest rate you were approved because the wholesale lender pays a bonus of one percent of your mortgage amount for every quarter percent you agree to overpay. Your mortgage broker will never tell you this is happening and the disclosure is buried deep in your mortgage documents.You Can Refinance With a Wholesale Mortgage RateHomeowners who learn how to recognize Yield Spread Premium can avoid paying the markup by negotiating with potential mortgage brokers. You’re already paying a perfectly reasonable origination fee for the mortgage broker’s work; any amount of Yield Spread Premium you pay is not only unnecessary but is taking advantage of you for a commission.You can learn more about your mortgage refinancing options, including other expensive pitfalls you need to avoid with a free mortgage toolkit.
If you are considering a new home mortgage refinance loan but need the lowest payment amount possible there are several ways to accomplish this. You can qualify for a lower monthly payment amount even if you cannot qualify for a lower mortgage rate. Here are several tips to help you find the home mortgage refinance loan with payment options right for your budget.Lowering Your Monthly Payment Has RisksYou can free up cash in your monthly budget by lowering your mortgage payment; however, you could end up paying more in total finance charges over the life of your mortgage. You will also build equity in your home at a much slower rate as more of your smaller monthly payment amount will be applied to interest.Qualifying For a Lower Mortgage Rate is BestIf your financial situation is different now than when you purchased your home, you could qualify for a lower mortgage interest rate. Mortgage interest rates are still at historically low levels and there are still homeowners out there paying nine percent or more for their mortgage loans. Qualifying for a lower mortgage interest rate allows you to lower your monthly payment amount without extending the term length. You pay less finance charges to the mortgage lender and more towards building equity in your home.Lower Your Payment By Extending the Term LengthTerm length is the amount of time you have to repay your home mortgage refinance loan. The most common mortgage term is thirty years. If you’re unable to qualify for a lower mortgage rate, choosing a term length of forty or even fifty years could help meet your financial needs.Combining Options for the Lowest Mortgage Payment PossibleYou have the option of combining a lower mortgage rate with a longer term length to achieve the lowest monthly payment possible outside of an interest only mortgage. Start by comparison shopping and negotiating for the lowest mortgage rate and then factor in term length to find a mortgage payment that is acceptable to your monthly budget.You can learn more about your mortgage options, including costly mistakes to avoid by registering for a free six-part video tutorial.
Paying discount points at closing can get you a lower mortgage rate; however, you need to run the numbers to make sure paying points is beneficial in your situation. Discount points are different from the origination points you’ll be required to pay; you want to avoid overpaying for origination fees. Here are the basics of points to help you decide if paying discount points is right for you.Discount Points vs. Origination PointsPoints come in two flavors. There are the discount points you pay in exchange for a lower mortgage rate or better terms, and the origination points you pay to the mortgage company or broker that sells you the loan. In both cases one point equals one percent of your loan amount. When you elect to pay discount points you typically lower your interest rate by .25% for each point you pay. Origination points paid to your mortgage company or broker should never be more than 1.5% of your loan amount. Anything more than a point and a half for loan origination is considered excessive.Pros & Cons of Paying Discount PointsPaying discount points for your home mortgage refinance loan can save you money if you plan on keeping the home for a long time. You can calculate your potential savings from paying discount points and how long it will take you to recoup the expense with a simple online mortgage calculator.The main disadvantage of paying discount points is that you’ll have to come up with the cash prior to closing and if you don’t stay in your home long enough you may not recoup the expense. To calculate if paying discount points is beneficial for you, divide the amount you pay by how much lower your mortgage payment will be. This will tell you how long it will take to recoup paying discount points on your home mortgage refinance loan.Suppose that your home mortgage refinance loan is for $150,000 and you qualify for 6.5% with zero points or you can pay two points and qualify for 6.0%. The monthly payment without points will be $947; paying two points will lower your payment to $917 per month for a savings of $30 per month. You will pay $3,000 to save $30 each month and it will take you just over eight years to recoup this expense.You can learn more strategies for refinancing your mortgage without overpaying by registering for a free home mortgage refinance loan tutorial.
If you are considering an Adjustable Rate Mortgage for your home mortgage refinance loan, structuring the loan properly can limit your risk and save you money. How do you manage risk with an Adjustable Rate Mortgage? Caps protect borrowers by limiting how much the interest rate or payment amount goes up when the lender adjusts your mortgage. Here are several tips to help save you money and limit your risk when taking out an Adjustable Rate Home Mortgage Refinance Loan.Caps limit change in your Adjustable Rate Mortgage’s interest rate and monthly payment amount. There are three types of caps: periodic caps that limit interest rate changes, payment caps that limit payment amount changes, and lifetime caps that limit total change over the life of your mortgage. Your caps must be a part of the loan contract or you have no protection from rising interest rates. Your loan contract will also specify the interval that your mortgage lender adjusts your mortgage loan, typically every year on the anniversary date.It is important to ensure that your Adjustable Rate mortgage has both periodic and payment caps. Homeowners that structure their adjustable home mortgage refinance loans with only payment caps often experience negative amortization when the payment cap does not allow the payment to go up enough with rising interest rates. When the interest rate rises too quickly the amount of interest due each month is not paid because of the payment cap, the unpaid amount is added to the mortgage principle. This results in a growing mortgage balance over time.You can learn more about your home mortgage refinance options and other costly mistakes to avoid by registering for a free mortgage tutorial.
If you are in the market for a home mortgage refinance loan, there are several things you need to know to avoid overpaying. Careful comparison shopping will help you avoid 90% of the mistakes homeowners make when refinancing their mortgage loans. Here are several tips to help get you started with a home mortgage refinance loan.Before choosing a home mortgage refinance loan it is important to do your homework and research mortgage lenders. When you comparison shop home mortgage refinance loan offers, make sure you are comparing more than interest rates. Some homeowners think that by choosing the home mortgage refinance loan with the lowest interest rate they will automatically get the best deal. If you focus only on the interest rates you will overpay for closing costs and lender fees.Home Mortgage Refinance Loan: Watch Out for Yield Spread PremiumA hidden fee you need to watch out for is called Yield Spread Premium. This is the retail markup of your mortgage interest rate by the Mortgage Company or broker. When you apply for a home mortgage refinance loan, the wholesale lender that approves your application qualifies you for a certain interest rate. This wholesale lender gives your Mortgage Company or broker a written guarantee of that interest rate. The written guarantee you receive is rarely the same one from the wholesale lender and includes Yield Spread Premium.Mortgage Companies and Brokers mark up the interest rate on your home mortgage refinance loan because the wholesale lender pays them a bonus for overcharging you. How can you avoid paying Yield Spread Premium on your home mortgage refinance loan? Homeowners that recognize this markup will avoid paying it. You can learn more about avoiding retail markup of your home mortgage refinance loan and other costly mistakes by registering for a free mortgage refinancing tutorial.
If you are a homeowner considering mortgage refinancing, it is important to know what reasonable fees you can expect to pay. Comparison shopping for a home mortgage refinance loan will save you thousands of dollars if you know what reasonable rates and fees are. Here are several tips to help you avoid overpaying fees when taking out a home mortgage refinance loan.Mortgage refinancing can save you thousands of dollars when done correctly. When comparison shopping for a home mortgage refinance loan, it is important to compare lender fees, closing costs, and interest rates using the Good Faith Estimate. Many financial advisors tell you to pick a mortgage based on the Annual Percentage Rate; however, the APR does not give you enough information to make an informed decision.Home Mortgage Refinance Loan Origination FeesOrigination fees are paid to the Mortgage Company or broker that completes your home mortgage refinance loan. Your home mortgage refinance loan origination fees should not be higher than 1-1.5% for a home you live in. If you are refinancing an investment property you can expect your origination fees to run 2-2.5%.Home Mortgage Refinance Loan Junk FeesThe next fee to locate on your Good Faith Estimate is the home mortgage refinance loan processing fee. Do not pay more than $400 for loan processing; anything more and the mortgage company is gouging you with the processing fee. Lastly, look for anything on the home mortgage refinance loan Good Faith Estimate that resembles a broker origination or courier fee, application fee, loan submission fee, or lock fees. These are mortgage company junk fees that you should never agree to pay.You can learn more about home mortgage refinance loans and avoiding costly mistakes by registering for a free mortgage tutorial.
Your FICO Credit score is used by mortgage companies to determine how much of a risk you are for a home mortgage refinance loan. The lower your score, the more you will pay when mortgage refinancing. There are ways to improve your credit before applying and save money on your home mortgage refinance loan. Here are tips to help you polish your FICO score and qualify for a better mortgage refinancing interest rate.FICO stands for “Fair Isaac Corporation,” named for the company that calculates your score. Fair Isaac evaluates the contents of your credit reports and assigns a numerical value to your credit worthiness. Because there are three companies that maintain records, you will have three FICO scores, one for each credit agency. Before you consider mortgage refinancing it is important to request credit reports from each credit reporting agency and carefully review your records for errors.Any adverse information found in your credit reports will damage your FICO scores. Other factors that affect your FICO score include the length of time you have been using credit, the amount of available credit vs. your debts, negative credit information in your file, collections, any write-offs or bad debt. If you find mistakes in your credit history it is important to dispute the error and allow enough time for the correction to raise your FICO score before applying for a home mortgage refinance loan.How to Improve Your FICO Score before Mortgage RefinancingImproving your credit score takes time, there is no quick fix; however, there are steps you can take to raise your score. First, make sure you are paying all of your bills on time as 35% of your FICO score is based on your payment history. Fair Isaac also bases 30% of your FICO score on the amount of your debts and your available credit limit. The remaining factors include 15% based on the length of your credit history, 10% on the amount of recent inquires, and 10% on the type of credit accounts you use.The items you can control prior to mortgage refinancing include paying your bills on time, maintaining low balances on your credit cards, and paying off negative information found in your credit reports. The more time you have to devote to improving your credit score, the more you can boost your FICO Score. If you are a homeowner with poor credit you want to devote at least six months to improving your FICO score before applying for a home mortgage refinance loan. You can learn more about your credit and how it affects mortgage refinancing by registering for a free mortgage tutorial.
If you are considering a home mortgage refinance loan there are many great reasons for mortgage refinancing. If you are considering mortgage refinancing but are not sure how to get started, here are several tips to help you decide if a home mortgage refinance loan is right for you.When is a Home Mortgage Refinance Loan a Good Idea?There are a variety of reasons for refinancing your mortgage. Every financial situation is different and there are many reasons for refinancing in your situation. For instance, if your financial situation has improved since purchasing your home, you may qualify for a better interest rate with a new home mortgage refinance loan.Interest rates along with the term length you choose determine how much your monthly payment will be. Even if you cannot qualify for a lower mortgage interest rate you can still lower your mortgage payment by extending the term length of your loan. Choosing a mortgage with a fifty year term length could significantly lower your payment allowing you to take back control of your monthly budget.Advantages of Home Mortgage Refinance LoansThere are a number of advantages to home mortgage refinance loans; depending on your individual finances you may take advantage of the following benefits:o Tax-deductible Debt Consolidationo Lower Mortgage Paymentso Lower Mortgage Interest Rateso Stop Paying Private Mortgage Insuranceo Switch to a Fixed Mortgage Interest Rateo Switch to a More Advantageous Term LengthHow to Avoid Overpaying for Your Home Mortgage Refinance LoanWhen you begin shopping for a new home mortgage refinance loan, there are many choices available to you. Choosing the right type of mortgage interest rate and term length will help you avoid overpaying for your home mortgage refinance loan. You can learn more about mortgage refinancing, including costly mistakes to avoid by registering for a free mortgage tutorial.
If you are in the process of refinancing your home mortgage loan, choosing the right type of mortgage for your situation could save you thousands of dollars. There are two basic types of mortgage loans to choose from when refinancing depending on your financial needs and tolerance for risk. Here are several tips to help you choose the right type for mortgage when refinancing your home loan.Mortgage loans come in two varieties: loans with fixed interest rates and those with adjustable interest rates. Fixed Rate Mortgages come with term lengths of ten to fifty years and have payments based on an interest rate that does not change for the duration of the loan. Adjustable Rate Mortgages on the other hand, are based on a specific financial index and will include the mortgage lenders margin. There is another type of mortgage known as hybrid loans; however, hybrid mortgages are really just a combination of Fixed Rate and Adjustable Rate Mortgages.The interest rate on your Adjustable Rate Mortgage will change every time the lender resets your loan. When the lender resets your interest rate and payment amount, they will use the financial index your loan is tied to plus their own margin. The most common index used by mortgage lenders is the one-year Treasure note. Adjustable Rate Mortgages have the advantage of lower initial payments; however, these loans have more risk for borrowers once the lender begins adjusting the loan.Homeowners who understand the risks associated with Adjustable Rate Mortgages can save thousands of dollars when refinancing their mortgage loans. You shouldn’t write off Adjustable Rate Mortgages because someone told you that you’ll have payment shock when the lender begins adjusting your loan.You can learn more about your mortgage options, including costly mistakes to avoid with a free mortgage tutorial.
One of the newest mortgage products available is the 50 year mortgage loan. This is a typical home mortgage drawn out over a fifty year period. The main advantage of a 50 year mortgage loan is a significantly lower monthly payment; however, there are drawbacks to a mortgage of this term length. Here are several tips to help you decide if refinancing with a 50 year mortgage is right for you.If you are in need of the lowest monthly payment possible but want to avoid interest-only mortgages, 50 year terms are an affordable alternative. This mortgage has the advantage of lower payments while still building equity in your home. The downside is that you will have an additional twenty years of interest payments to make.Avoid Interest Only Mortgage LoansInterest only mortgages have lower monthly payments during the interest only period; however, when this period ends the lender will re-amortize your loan for the remaining term length and your payments go up significantly. By choosing a 50 year fixed rate mortgage you will have a payment you can plan your budget around.50 Year Mortgage DrawbacksHomeowners are often tempted to purchase more home than they can afford with a 50 year mortgage. You also have to pay an additional 20 years of interest on the loan. Your monthly mortgage payment will be lower; however, you will pay much more to the lender for your financing.
There are still many more advantages to refinancing your mortgage with a 50 year loan. To learn more about your mortgage refinancing options including costly mistakes to avoid, register for a free mortgage tutorial.