Refinancing loan » Amortization

Home Loans & Refinancing, Borrower Beware!

admin — Sat, 24 Apr 2010 12:44:55 +0000

Mortgages…if you are planning to purchase or refinance your home you should be very careful about the home loan you select. There are many gimmick loans on the market today like “interest only loans” and “negative amortization loans” which help people buy over priced property by the skin of their teeth. Having been a loan officer for a number of years in the past, I have often wondered why people just don’t stick to the traditional “30-year mortgage” and buy (or refinance) what they can afford. If you plan on buying or refinancing a home consider the following… In my mind, a 30-year fixed rate loan is better than a 15-fixed rate loan and here’s why… you have a lower monthly payment with a 30-year loan than a 15-year loan. What if something happens to your income?

Sure, you can pay a 15-year mortgage off faster but you have a higher house payment strapped to your back and if ANYTHING causes a reduction in your income you may find yourself hard pressed to make the house payment. Few people realize that you can pay off a 30-year loan in about 15-years by making 1 or 2 “principal only payments” on a 30-year loan each year. The key is that you decide whether you can afford to make those additional principal payments rather than being obligated to higher monthly payments under a 15-year loan. You may pay a slightly higher rate on a 30-year loan but the comfort level and flexibility of a 30-year loan may be worth it. Adjustable rate loans (ARM’S) are risky business and tend to “adjust up” over time. They say “whatever goes up must come down” and with interest rate you can pretty much bet that “whatever goes down must go up”. Here are a few tips for people who are planning on buying or refinancing a home:

1. Thinking about refinancing? You typically want to see a 2% improvement from your current interest rate and the proposed “new rate”. When you add up the costs of refinancing as well as the time and hassle associated with the process, you may find a refinancing doesn’t make a lot of economic sense with a spread lower then 2%.

2. Find your break-even point by taking the total costs of refinancing (divided by) the projected monthly savings under the new rate. Doing so will tell you how many months it will take to get your money back!

3. How long you plan to own the property is important. Rule of thumb: If you plan on owning the property for less then 5 years, a refinancing may or may not make sense. Only you and the numbers can tell!

A “Discount point” is 1% of the amount of money you are borrowing and is paid to a lender to secure a lower interest rate on a mortgage. Many people want to pay “points” to get a lower rate. But, are you really getting a lower rate? When you pay discount points you are basically pre-paying the lender interest 15 or 30 years in advance! You are handing over “real dollars” for an intangible “interest rate” that will result in a lower monthly payment…the more important question is will you live in the property for 15 or 30 years? If not, why prepay the interest? Hint: Zero point home loans often make the most sense.

Another cool tip if you have equity in your home and need to purchase a large ticket item like a car… it may make sense to refinance the house and roll the car purchase up in the new mortgage. In this way you spread the cost of your car over the life of the loan, avoid the high interest car loan with whatever tax advantages you may have resulting from your mortgage deductions.

Copyright © 2006

James W. Hart, IV

Refinancing Home Loans – Some Disadvantages

admin — Tue, 23 Mar 2010 08:18:33 +0000

If you are thinking of refinancing your home loan, you must first know the disadvantages of doing so. When you get a refinance loan, you basically make a new loan so that you can pay off your original loan. But here are the disadvantages:

• Costs – When you pay fees to get a loan, it means it will cost money to get a loan. This also means that you may not recoup at lower interest rates for years. Now, the only way to figure this all out is to add up the fees. Get the difference between the old payment and the new payment that you are making. Then divide the difference so that you can get the loan fees. These loan fees should equal the number of months you must pay until your new loan breaks even.

• Amortization – In a case like this, your amortization period will be much longer. You have the option of making it shorter but you might not qualify for the higher payment to begin with. You might also want to pay off the loan faster by paying more each month. So, if you refinance a loan that has 25 years remaining on it and you use a 30-year loan to do that, you will end up with a loan that will last 35 years to pay off.

• Mortgage – This will be larger in the case of refinancing home loans. This is because rolling the costs of the loan on a loan in itself will make it bigger and this can really harm your position in equity.

By: Elijah James

Refinance Mortgage Loan – Shorten Your Loan Term

admin — Mon, 08 Mar 2010 01:18:19 +0000

A 15-year loan term has many advantages, although it may appear to be expensive because of the higher monthly amortization. However, a shorter loan term assures you that you’ll be free from this burden before or at the time of retirement and save thousands of dollars. Consider having your loan restructured to a shorter loan term.

Benefits of a Shorter Loan Term

The prospect of spending 30 years paying back a mortgage is discouraging. If you have 20 years remaining on your loan, the option to shorten your loan term to 15 can be tempting. Taking away 5 years from a 20-year loan means a higher monthly bill, but freedom from the mortgage after 15 years instead of 20 is definitely more appealing. But if it’s only a matter of a few hundred dollars more, why not? Never mind if you’ll be paying a higher monthly bill.

You’ll be saving thousands of dollars from interests alone with the five years knocked off from the 20-year loan term. Another benefit is building your home equity faster. A refinance mortgage loan offers the chance to restructure your terms.

What’s Involved

For a home mortgage, the lender will pull your credit record to check if you’ve been paying your debts on time. You’ll also be paying the fees involved before, during, and after your loan is processed.

The lender will assess all the information to evaluate if you are a good risk for a shorter loan term. If you’re dealing with the same lender, the process won’t be as rigorous and as lengthy like it would be if you go to a new lender.

It’s a fact that lenders prefer long-term mortgages because it rakes in more profits. To counter loss in future profits, lenders penalize borrowers for paying their mortgage ahead of term. This is why prospective borrowers should always inquire if the lender charges prepayment penalties.

Assuming that your lender does not charge penalties on prepayment, you have to contend instead with the closing costs for your refinance mortgage loan.

Others get a refinance mortgage loan to switch to a short term interest only loan. They are banking on the equity of the house and intend to sell it in the near future. The proceeds of the sale will go to the interest and they can still have extra money from the profit. In your case, you’re looking at the full ownership of your home in a shorter time.

For a new loan, you can decide if you want a fixed rate mortgage or an ARM. An online calculator can compute how much you’re going to pay the monthly bill in 15 years’ time. From the calculations, you’ll be able to determine the feasibility of a short term ARM or fixed rate refinance mortgage loan.

Short Term or Long Term?

A short term, or traditional loan, will always depend on your financial situation and future plans. A short-term refi is ideal now that interest rates are low. You’ll be surprised that you’ll be paying the same monthly fee as your first mortgage, so there’s not much of a change in the monthly bills. The prospect of paying off your loan in 15 years, however, is imminent. For those who feel secure with the stability of the traditional 30-year loan term, switching from an ARM to a fixed rate refinance mortgage loan is recommended.

By: Rony Walker

Refinancing Mortgage Loan Options – How to Refinance and Keep Your Terms

admin — Sat, 06 Feb 2010 13:05:20 +0000

Refinancing can save you money, but the downside is that you have to restart amortization. Once again you are paying mostly interest at the beginning of your loan. But there are ways you can get around this, keeping your original pay off period and saving on interest charges.

Short-Term Refinance Loans

Lenders offer a variety of terms – 30, 25, 20, or 15 years. By refinancing for a shorter term you can closely match your original pay off date. Unfortunately, lenders don’t fraction year terms – such as 22 years and 4 months.

However, by choosing a shorter term, you may qualify for even lower rates. You can also pay off your loan sooner, further increasing your interest savings.

Self Increasing Your Payment On Refinance Loans

Another option is to refinance your mortgage for 30 years. Then make an additional principal payment each month to pay off your loan at the original date. You can use a mortgage calculator to determine this amount. You can also make one extra payment a year to reach the same results.

With this approach, you have control over your payments. For some this can be seen as a negative, since there isn’t the required payment. You can also pay off your loan earlier by increasing your principal payment even more.

Pre-pay “Cash Out” Refinance

The third option is to take out the original loan amount. Then prepay the principal amount to what you currently were at with your original loan. That way you will pay off your loan on your original terms.

This option gives you more control over the pay off date. But, you may be charged a higher rate for cashing out part of your equity.

Selecting the Right Refinance Option

Each approach has its own advantages and disadvantages. Mostly it comes down to a matter of preference and what works for your budget. However, do ask for rate quotes to see the difference in interest costs. Not only will you have a better understanding of the numbers involved, but you will also find the best APR.

By: Carrie Reeder

Different Types of Mortgage Refinancing Loans

admin — Wed, 30 Dec 2009 03:14:42 +0000

There are several types of mortgage refinancing loans available in the market today. With these different types of getting your mortgage refinanced, you can make the choices based on your circumstances and your needs. These are mostly taken out to make some renovations, pay off debts or use the proceeds for your child’s college education. Regardless of where you will use the proceeds of the refinancing loan, it would be smart to know the different types in order to make an informed decision.

The different types are; fixed rate, variable rate, interest only, balloon type, home equity, and fully amortizing mortgage refinance loan.

Fixed rate type is one where the interest rate is locked to a fix amount and will stay for the duration of the loan. In other words, it would simply mean that you are going pay at a constant rate of interest for the whole life of whatever balance you have.

Variable rates are where the interest rates fluctuate or changes with certain predetermine index. This is not for the faintest of heart as this can change anytime as the market changes its directions. This type of refinancing normally gives the borrower and introductory low rate which is usually between 3 to 5 years then the real variable rate starts to kick in.

Interest only type is self explanatory in the sense that you are being ask to pay only the interest mostly for a period of time. After the specified time has lapse, you will start paying the principal.

Fully amortization is one where your monthly payments are a combination of all the interest charges and additional payments towards the balance. This is very good option as it will reduce your balance every time you make your payments, thus paying off the mortgage loan will be faster.

The home equity type of refinance is where you borrow against your equity on the house and use it as a collateral or security for your borrowings. You then be able to get the money in the form of a revolving credit line or cash.

So now that you know and understand the different types of mortgage refinancing loans, you are not going blindly into applying to refinance your mortgage loan. Learning, understanding and knowing what the types are can really help you make an informed decision when the time comes to refinance your mortgage loan.

By: Julie Viola

Option ARM Refinancing Loans

admin — Tue, 03 Nov 2009 19:48:26 +0000

There are many products available that are included under the umbrella of refinancing loans; one of them is the Option ARM refinancing loan. ARM stands for adjustable rate mortgage and while it is a popular option, before you apply for one, there are a few things you should know.

An option ARM refinance loan is possibly the most flexible type of loan on the market. With the option ARM refinance loan, you have four different options to control your loan payments each month.

For instance there are two options that allow you to pay less than the principle and interest that are normal for all standard loans. Instead of paying both the interest and principle, you can choose to pay either the minimum payment or interest only. Minimum payment is the absolute minimum you can pay on your monthly loan payment. This type of payment is usually term interest deferred, because not only are you not paying the principle, you are also not paying some of the interest. The interest and principle are tacked on later on in the life of the loan according to the specific loan schedule. It should be noted that the minimum payment is usually increased every year to keep the homeowner somewhat in line with their necessary payments.

An Interest only option allows the homeowner the option to pay only the interest on the loan deferring the principle. Interest only payments are a great way to increase cash flow, when employment is tight or if you would rather use your monthly income for other types of purchases or investments.

Besides two options for paying less than the principle and interest of the loan, you also have two options for paying both your principle and interest. The first type of payment option is called the 30 year amortization payment. You pay your loan according to a standard loan in which you pay the principle and interest for a full 30 year mortgage term. The other type of option available is the full 15 year amortization payment. If you have extra income and would like to pay down your debt quickly, you can choose the option of paying off your loan in a 15 year schedule.

It should be noted that this type of mortgage is not for everyone. For instance, seasonal employees might benefit from this type of mortgage especially during the slow season and savvy homeowners that manage their money well can also benefit. However, this type of loan is not for the person looking to pay the least amount possible due to a lower income. In situations like these, this loan can increase the risk of financial problems.

By: Connie Barker