June 2006, Topic - Refinancing / Second Mortgages

Mortgage industry specialists agree that switching types of mortgages is the main reason for refinancing. Often times consumers switch from fixed rate loans to adjustable rate loans. The majority of times this saves consumers a lot of money due to the fact that the interest rates tend to be lower on these mortgages.

Bankers say that depending on your situation refinancing to ARMS, fixed rates, and balloon mortgages can all save you alot of money in the long run. Even though there is a cost associated with refinancing it often times will not outweigh the benefit of refinancing. Many homeowners who refinance have claimed that the cost to refinance was well worth it and they have saved a significant amount of money.

Aside from saving money other people refinance to get cash out. Did you know you could actually take the equity out of your home before selling it? It has become more common in recent years. The way it works is to find out the value of your home by getting it appraised. You then take the value and subtract it from the mortgage amount and the difference is the equity. Banks allow you to take this money out and pay interest on it for as long as you want. Many people do this and do not repay until the sale of their home.

01.  Costs associated with refinancing
02.  Tips for refinancing
03.  Common mistakes made when refinancing
04.  Terms to know

1. Costs associated with refinancing

• Usually a requirement of at least 5 percent of equity in the appraised value.
• Must pay closing costs, which can add up to 3 to 5 percent of the loan amount.
• In some cases Private Mortgage Insurance is required depending on your financial situation.

2.Tips for refinancing

APR: Review the APR, which is being offered to you by each institution. By doing this you could save a lot of money.

Rates: Home equity loan rates will vary among lenders. There should only be three rates, which are as follows up front loan costs, maintenance costs, and pre-payment fees. Ask the borrower to review all the fees and be sure that you are not paying any other fees. Compare the price of the fees with each lender. Some lenders may try to charge a lot more than others. For more information of these rates please refer to the terms section of this newsletter.

Research: : Research the company that you choose to work with. Check with references and make sure there are no complaints against them.

Read carefully and ask for all items disclosed: This sounds simple but is so often overlooked. Do not be shy read all the documents even if the borrower has explained them and ask that all loan terms be disclosed.

Credit scores: When shopping around for the best rate, do not allow every mortgage company to run your credit history. It will only cause your score to go down. Narrow it down and just allow your final company to do so. Inform the borrowers that until you decide which company you will do business with you will not give that information. If it is a noble company they will fully cooperate. If the company should give you a hard time then walk away.

3. Common mistakes made when refinancing

Choosing the best loan for your situation:

In order for refinancing to make sense you must choose the best loan to refinance to. Talk to a professional loan counselor or broker about your goals and intentions and they can steer you in the right direction.

Paying too much money for insurance:

Mortgage insurance often referred to, as PMI is what you pay in case you default on your loan. It is ideal to not have to carry PMI at all. The way to do this is to have 80% equity in your home. Of course in the real world this is not always the case. If you do have to carry PMI be sure to shop around and not get taken advantage of.

Fixed Rate or Adjustable Rate Mortgage:

In the past most people who refinanced switched to a fixed rate. Nowadays, though with the interest rates being low it is sometimes better to switch to an ARM. Talk to a specialist about which is better for you. Remember though not to rule out adjustable rate mortgages right away this type of mortgage could end up being the best.

Not shopping around:

Consumers tend to refinance with their current lender for convenience. However, you may be making a big mistake. Your current lender may not have the best rates and may end up not saving you as much money as a competing lender.

4. Terms to know

Amortization: Paying off a mortgage in monthly increments.

Appraised Value: An opinion of value reached by an appraiser based on certain information, such as the sale price of other homes in your area, and the condition of your property.

Cash Out: A refinance for more than the balance of your current mortgage. The extra money taken out reduces the equity in your home.

Cash Reserve: Funds the borrower will have after all expenses have been paid.

Closing: The conclusion of a transaction.

Deed: Legal document which transfers property from one person to another.

Delinquency: Failure to make payments.

Draw Fees: A fee that is charged every time you withdraw money.

Fixed Rate Mortgage: A mortgage where the interest rate does not change for the term of the loan.

Loan Amount: The actual amount of the money borrowed

Maintenance fees: Annual charges to keep a home equity loan active.

Pre-Payment Fees: A fee that is charged for clearing the debt on a loan before the loan has expired.

Property Value: the difference between the amounts you owe on a property and the appraised value.

Tax Savings: The money you save in income taxes. Usually the money you pay in interest on your loan is tax deductible.

Refinancing: The process of the same borrower paying off one loan with the proceeds from another loan.

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Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us - to reserve your seat contact our Education Team on 561-883-2398 Ex.310

Newsletter 06
Rev.1
June, 2006