I wish I would have never taken out this adjustable loan. What do I do now?
For the past several years so many people have taken out adjustable loans only to later realize that at some point, when the loan adjusts, that their monthly payment might be higher than they can really afford. Furthermore, many of these adjustable loans included a prepayment penalty. Such a penalty forces the borrower to pay a large fee to close out a loan, whether you refinance or sell.
Therefore the first step in deciding whether to refinance is to find out exactly what type of loan you have. Call your lender at the number provided on the mortgage statement and find out if your loan is in fact fixed or adjustable. If they tell you it is fixed be sure to ask, “for how long is it fixed?” If they say 5 years or less, you really have an adjustable loan. Most adjustable loans were packaged in 2, 3 or 5 year increments. Only if they tell you that your loan is the same rate for 15 years, 20 or 30 years do you have a true fixed rate loan.
The next step is to then find out if you have a prepayment penalty and just how much extra it will cost to actually refinance out of your present loan program. Some prepayment penalties will be equal to 6 months of mortgage payments. Others are for a percentage of the outstanding loan amount, (i.e. 1% or 2% etc).
Finally you need to find out when your prepayment penalty is going to expire. For example many adjustable mortgages have a fixed rate for 2 years and then will adjust. After 2 years your prepayment penalty should also expire. Hopefully this is the case so you can move forward and take advantage of the great refinance rates that are presently available.
However, if your loan is to adjust after 2 years but your prepay penalty won’t expire for 3 years then you are in an unfortunate position because odds are your monthly payment is going higher and in the mean time you will be stuck paying a prepayment penalty if you choose to refinance and if you do not refinance because of the penalty, than you are stuck with one more year of higher monthly payments.
Fortunately most reputable lenders and loan officers set up their client’s adjustable loans to adjust after 2 or 3 years. If your loan was fixed for 2 years the penalty would end after 2 years, and if your loan was to adjust after 3 years the penalty would end after 3 years.
So be proactive and find out exactly what type of loan you have and you will be well on your way to knowing whether it is a good time to refinance or not.
Good Luck and Happy Hunting.
By: Allen Sayble
Posts Tagged ‘Prepayment Penalty’
When Should I Refinance My Adjustable Loan?
April 18th, 2010Home Mortgage Refinancing Loans For People With Bad Credit
March 3rd, 2010
Lower interest rates are the main reason people want to refinance their mortgages. If you have good credit history, you should not have any difficulty to refinance your mortgage. However, for those who have bad credit history, they have to spend more time and effort looking for lenders who provide the best refinancing option. Nevertheless, it’s possible to get refinancing loan even if you have bad credit.
You may be wondering why lenders give loans to people who have poor credit? What is the rationale? Well, many lenders realize that a credit history of a person is merely an indication that he or she is more likely to default. However, there is no guarantee that people who have good credit history will not default. In fact, many of them do default. And many individuals who have poor credit are actually more determined to get back on their feet. So, an indication is just an indication.
The lenders are not stupid, bad credit loans are tailor made for those who have poor credit history. The terms and conditions and interest rates for such loans are different from normal loans. If you have poor credit and want to refinance your mortgage, you must do your homeworks well and make several comparisons from various lenders in order to get the best interest rates.
When you refinance your home, you’re basically apply for a new mortgage loan to replace the existing one. So the entire process is very similar to when you were applying for your first mortgage loan. You still need to pay the closing fees and other fees such as title search, attorney fees, and prepayment penalty fees. So, make sure that you talk to different lenders and compare the terms and choose one that can give you the best deal.
Home mortgage refinancing makes sense when you can take advantage of the lower interest rates. For example, if you purchased your home when interest rates were high, you’re likely to pay at least three points higher than the current interest rates. By refinancing your home, you could save hundreds of dollars every month on your mortgage payment. So, it’s a smart move.
Be prudent and careful as you search for your bad credit refinancing program, never allow yourself to feel rushed or desperate. Most lenders will try to take advantage of you by charging a high interest rate and higher fees as they know that your options are limited. Don’t let that happens to you, be patient and do your homeworks well until you find a lender that can offer you the best deal.
By: Yvonne Suzannah
Cash-Out Refinance Loans Are Really Such a Good Deal?
February 25th, 2010
There are many variables to analyze in order to decide whether refinancing your home loan is to your advantage or not. The new loan terms are not the only things you need to consider. The previous loan’s terms will also have to be taken into account when deciding if refinancing your mortgage loan is a smart thing to do.
What Determines Whether a Refinance Loan is Onerous or Not?
Regarding the new loan, the terms you need to analyze are the following: interest rate charged, loan repayment program, resulting loan installments, administrative fees, closing costs, additional fees and costs. Though these are the main factors that will determine your choice, you need to read both loan contracts thoroughly as there may be additional terms written in fine print that may turn the loan more onerous too.
When it comes to the previous loan, you should also compare interest rates, repayment program and resulting loan installments, fees and costs. But you should pay special attention to prepayment penalty clauses. These clauses are meant to discourage you from refinancing your home loan by charging a fee if you want to prepay your current loan. If your home loan has this clause on it, you’ll need to ponder its amount too in order to decide whether you’ll save money by refinancing.
Interest Rate Comparatives
The main thing you need to compare is the interest rate charged for the money. This will determine whether your loan payments will drop (if the repayment program stays unaltered) and how much money you’ll save by refinancing. By requesting a cash out refinance loan you will get the finance you need but if the interest rate charged for your refinance loan is higher than your previous mortgage and your outstanding debt is still too high, you need to consider if it wouldn’t be cheaper to keep your current loan and request a home equity loan instead of refinancing.
Terms and Conditions
There are other loan terms and conditions you need to consider too. For starters, if the loan repayment program is longer and the interest rate stays unaltered you may save money towards inflation but in any case, you’ll at least benefit from lower and more affordable monthly payments.
Administrative fees are a common way lenders have to compensate for low interest rates. They offer promotional rates in order to attract clients and later, you find out that you have to pay thousands of dollars on administrative fees that if pondered altogether with the loan could raise the rate a point or two.
The same goes to closing costs which usually include legal fees, costs of paperwork, etc. Make sure to get a list of the items that the concept “closing costs” include before signing anything as you may find a surprise like abusive legal fees or hundreds of dollars of paperwork as if they were printing in papyrus.
By: Kate Ross