If you are in the process of refinancing your mortgage it is important to understand how loan-to-value affects your mortgage application. Here is what you need to know about your loan-to-value ratio.
The value of your home is an important aspect of your mortgage application. The loan-to-value ratio lenders use is based on the appraised value of your home and the amount you are requesting to borrow. To determine your loan-to-value ratio, divide the total amount of your loan by the value of your home from a recent appraisal.
For example, if your home is worth $150,000 and you are asking for $120,000 from your new mortgage lender, your loan-to-value ratio is .80 or 80%. Mortgage lenders have guidelines for approving mortgage loans and traditional lenders typically do not approve mortgage applications with loan-to-value ratios greater than 80 percent; if the lender is willing to approve a mortgage above 80% loan-to-value, that lender may require Private Mortgage Insurance in order to qualify.
Mortgage lenders consider homeowners with high loan-to-value ratios to be more of a risk for lending. Homeowners that own more equity in their homes are less likely to default on their mortgages than those that have little or no equity. In addition to requiring borrowers with high loan-to-value ratios to take out Private Mortgage Insurance, mortgage lenders charge these borrowers higher interest rates because of this increased risk. If you are a homeowner with a high loan-to-value ratio the lender may require you to pay for a new appraisal before approving your mortgage. To learn more about refinancing your mortgage and avoiding common mortgage mistakes, register for a free mortgage guidebook using the links below.
By: Louie Latour
Posts Tagged ‘Refinancing Loan’
Mortgage Refinancing: Loan-to-Value Ratio Basics
March 27th, 2010Refinancing Home Loans – Some Disadvantages
March 23rd, 2010
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
Home 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