This sounds great, but remember, in the beginning you will always be paying more in interest charges than on the principal balance.

It’s only later that you will really begin building up equity in your home. Of course, if housing values continue to rise you’ll build up equity that way too.

The worst example of equity is with a new car. Because of how quickly they depreciate, cars rarely have any equity value after the loan is paid.

So, when you hear someone talking about a home equity loan, you’ll now have a better understanding of what they’re talking about.

All Rights Reserved Worldwide. Reprint Rights: You may reprint this article as long as you leave all of the links active and do not edit the article in any way.

By the way, you can learn more about what are Home Equity Loans as well as more information on everything to do with home equity loans, visit us at http://www.HomeEquityLoansA-z.com

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]]> http://www.refinance-refinance.net/2007/04/25/home-equity-loan-what-is-it-2.html/feed/ http://www.refinance-refinance.net/2007/04/16/refinance-closing-costs.html http://www.refinance-refinance.net/2007/04/16/refinance-closing-costs.html#comments Mon, 16 Apr 2007 10:20:00 +0000 staff Refinance http://www.refinance-refinance.net/2007/04/16/refinance-closing-costs.html Closing Costs. Zero Closing Costs. No Out of Pocket Costs, No Points. We hear a lot about this stuff but when it comes time to refinance, do we really know what closing costs we are paying? The truth of the matter is that mortgage companies know you’re fixated on closing costs. Because it’s next to impossible to make an apples to apples comparison of closing costs between competing lenders, even with Good Faith Estimates, unscrupulous marketers are frequently able to get you to take your eye off the ball by promising unrealistic closing costs, while smoothly throwing a fastball and couple of sliders right past you for a strikeout. So how do we avoid being hit by the pitch? We need to evaluate the costs as they amortize into the loan, one way or another.

First, I’d like to debunk the notion of “No Closing Costs”, heavily advertised by national marketers and banks. Have you ever heard the expression “There’s no such thing as a Free Lunch?”. All things in this world have costs to produce, and if you know anything about the companies that produce things, you’ll agree that they do their darndest to make you pay for them.

Here is a list of things which are the bare minimum costs of refinancing a loan:

1. Title Search & Title Insurance: An inescapable fact of life, these are the costs charged by a third party company whose job it is to find out whose names are recorded in relation to the property, establish a chain of title going back 24 to 60 months, to uncover any judgments, liens, zoning issues, etc. That’s the title search. Title work will also include name searches and “plat drawing”. Then, based on a variety of factors, including the level of risk that they perceive from the title search and the value of the property, they underwrite Title Insurance which covers the lender in case they did not find someone or something on title which make the loan uncollectible. Like taxes, there’s no way to escape this fee, however you may be able to minimize it if you can use the same company you used when you bought the house or last refinanced (look at the closing documents)Title Search averages $300 nationally, with some markets coming in lower and some much higher

   Title Insurance is Variable because there are so many factors in involved including the property’s value, but the national average is about $700, although it’s not unheard of for title insurance to cost as much as $3000 or more depending on the size and complexity of the property and the chain of title.

   Settlement, the actual coordination of the loan closing, is often listed as an Attorney fee or Escrow Fee. This is necessary to ensure that all the paperwork is correct and that everyone who needs to get a check at closing, be it you, a service provider, your old lender, or any number of creditors you may be paying off. The average is $500, and varies again with the market.

   Other title expenses may or may not be required at the discretion of the lender or title company to ensure the security of the property, including surveys, bankruptcy searches, etc. These fees again vary but you can expect your title bill to be the largest third party fees in connection with a loan.

2. Government Fees: Another one you can’t get around is the government’s fees which can be broken down into Taxes and Recording Fees, but can include more.City/County/State Tax Stamps and Intangible or Mortgage Taxes vary so dramatically that I cannot even begin to address this issue here, but range from nothing at all to 3% or more of the property value. This is NOT the same thing as property tax.

   Recording fees are the costs your county recorders office charges to file your deed, is mandatory, and range from $75 to $250 dollars.

3. Other Third Party Fees:
1. Appraisal: National Average of $350 but can be much higher depending on property size and location.
2. Credit Report: Averages $30
3. Flood / Pest / Other Inspections: Averages $100
4. Basic Lender Costs:
   (remember, there are significant regional variations for these fees, and bigger homes carry bigger fees)
   1. Tax Service: $75 Average
   2. Wire Transfer: $35 Average
   3. Processing: $400 Average
5. Lender Discount Points:
   These are the “Points” on a loan, used to lower the interest rate to help you qualify for the loan based on your income. 1 point is 1% of the loan amount, so one a $200,000 loan a point is $2,000. You usually don’t need to pay points if your debt to income ratio or DTI, the measure of all of your debt payments plus your monthly housing expenses under the new loan, are below 40%. DTI guidelines are much more stringent today than they were even 3 months ago, especially for borrowers who are stating their income to qualify for the refinance.
6. Fees & Profit:
   Up until now, everything we have discussed has been around the hard costs of the loan. Now we get into the fee for service, where the lender or broker actually tries to make money, not unlike any other service provider such as an investment advisor, realtor or lawyer:
   1. Origination Fees: Often charged as a percentage of the loan
   2. Broker/Lender Fees: Again often charged as a Percentage of the loan

It’s important to remember that no one can do a loan for free, no matter how good of a customer you are, because each loan is a profit or loss to the lender by itself, and they have to assume that at one point or another the loan must be sold. Their time and their risk are valuable, just as your own or your lawyer’s or your realtor’s.Closing costs vary not only by location, but depend heavily on what you qualify for, so your credit will affect the final numbers, especially with regard to Discount Points. Calculating your own closing costs can be best achieved by speaking with a mortgage company who can give you a Good Faith Estimate which outlines all of the above mentioned fees.

Different Ways We Wind Up Paying For Closing Costs

Now that you’ve seen everything laid out, do you believe anyone can offer a “No Closing Costs” refinance? These hard costs are always paid for one of two ways:

1. You are billed for each item and can choose to pay them in cash at closing or to roll the costs into the new refinance so that there is no money out of pocket to you.
2. You are charged a higher rate than you would normally qualify for over the life of the loan, which allows the lender to realize a premium, or a profit, which they can then credit toward your closing costs. So if the best rate you qualify for, with no discounts, is 6.00%, raising the rate slightly, to 6.375% or 6.625%, may provide you with a “rebate” which the lender can choose to apply to closing costs.

Sometimes these methods are used in combination. My recommendation is to compare the payments. Let’s look at two completely hypothetical examples:Example 1: Roll Your Costs into the Loan Balance
$400,000 Refinance Loan Amount
$8,000 in Closing Costs
——————————————
$408,000 Financed
At 6.000% Interest over 30 Years
Has a Monthly Payment of $2446 for Principal & Interest
And a Monthly Payment of $2040 for Interest Only
A Typical Minimum Payment Option Would be About $1500

Example 2: Use a Higher Rate to Finance Closing Costs
$400,000 Refinance Loan Amount
“$0″ in Closing Costs (assuming the $8,000 in hard costs is advertised as Zero)

The reason I’ve included Interest Only payment option figures above is to show you how much more interest you pay each month if you choose a “Zero Closing Costs” option from any leading lender, versus rolling those costs into the loan. The final option is to pay for these costs out of pocket, which is not a very popular option today, but deserves treatment.

Example 3: Pay your own closing costs
$400,000 Refinance Loan Amount
$8,000 in Closing Costs Paid out of Pocket
——————————————
$400,000 Financed
At 6.000% Interest over 30 Years
Has a Monthly Payment of $2400 for Principal & Interest
And a Monthly Payment of $2000 for Interest Only
A Typical Minimum Payment Option Would be About $1465

Compared to rolling the closing costs into your loan, paying them out of pocket saves 46 dollars per month of principal and interest or 40 dollars of interest, a savings of about $500 a year or less. So unless you can’t get a return of more than $500 per year on your $8,000 investment (about 6.25%), there’s no strong argument to pay for the closing costs out of pocket. Online savings accounts and CDs already offer rates equivalent to this, and the S&P 500 has been returning about double this rate, so I personally would rather have access to my money and have it working for me. I won’t get into the fact that the extra $500 or so dollars of mortgage interest per year should be tax deductible as well (and please consult your CPA, we don’t give tax advice).

Cost - Benefit Analysis

Finally, we can turn to the benefits of refinancing and weigh them against the costs. We are going to do this by taking a before and after hypothetical situation, with the closing costs rolled in.

Hypothetically, let’s say that you want to refinance to Lower Your Monthly Payment, Change Your Loan Terms to get a fixed rate, and Take Advantage of the Equity Growth in Your Home to pay off your personal loans and credit card bills, and to improve your home to increase your quality of life. You are not planning to retire in this home, and plan on selling it in 5 years, but like the idea of a secure, fixed rate just in case rates go up a lot over the next 5 years. With the way the economy is going, you also want to keep your mortgage payment as low as possible, so in case anything happens you have the option to pay less on your mortgage.

You have a current mortgage balance of $350,000 dollars on which you pay $2250 per month, and your home is worth $600,000 dollars today compared to the $425,000 it was worth when you bought it.

You have about $32,000 in debts, on which you pay minimum payments of about $1500 a month and would like to take an additional $18,000 to do the kitchen, which you believe would improve the value of your home by $30,000.

So your total monthly spending on mortgage + cards etc. is $3750

Let’s say your credit score is 620, very average for a person with your level of credit card and other unsecured debt, and you prefer to state your income.

Hypothetically (this is only meant to be illustrative), you receive a rate quote and Good Faith Estimate which outlines the following:

Quote 1: Conventional 30 Year Fixed
$400,000 Refinance Loan Amount
$8,000 in Closing Costs
——————————————
$408,000 Financed
At 7.250% Interest over 30 Years
Has a Monthly Payment of $2783 for Principal & Interest
A Savings of $967.00 a month

Quote 2: Interest Only 30 Year Fixed
$400,000 Refinance Loan Amount
$8,000 in Closing Costs
——————————————
$408,000 Financed
At 7.500% Interest over 30 Years
Has a Monthly Payment of $2550 for Interest Only
A Savings of $1200.00 a month

It seems like a no-brainer right? The interest only is much lower, however your basic housing expense has still gone up $300, even though you’ve paid off all the cards and saved almost 1200 there. With the credit cards, even if you experienced a loss of income due to circumstances outside of your control, at least you could have afforded to miss those payments and scratch together money to make your mortgage payment, because the credit card lates would not cause you to lose your house. But with this refinance, which meets most of your goals, now you have to come up with a larger mortgage payment. So you get one more quote for a mortgage which allows for deferred interest, or making a minimum payment when you want to:

Quote 3: 30 Year Fixed Rate Cash Flow option mortgage
$400,000 Refinance Loan Amount
$8,000 in Closing Costs
——————————————
$408,000 Financed
At 7.500% Interest over 30 Years
Has a Monthly Payment of $2550 for Interest Only
Has a Minimum Payment Option of $1497
A Savings of $1200.00 a month on Interest Only
Ability to Defer Interest and Reduce your current minimum payment by over $2250.00

This is a fixed rate loan with the ability to defer interest, or a negative amortization loan, which allows you to use your remaining equity like a home equity line of credit whenever you want, with no closing costs. When you want to make a lower payment so your monthly cash flow goes further, you can do so by making the minimum payment, which borrows from your home equity to cover the difference between the interest only payment and the minimum payment. While the adjustable rate version of these loans are too risky to achieve your particular goals, a truly fixed rate cash flow option might be the answer, fulfilling all of your reasons to refinance while giving you security and flexibility for when a lower payment might be helpful.

Conclusion:
All loans costs money to originate and refinance, even if it’s not always clear how you may be paying for them. As we have seen, if you aren’t taking out a fixed rate cash flow option mortgage with the intent of only paying the minimum payment, most of the time it’s better to roll your closing costs into your loan, so that there is no out of pocket expense to you. Always remember to see if the loan achieves your goals, and don’t put too much stock in the GFE’s you receive while shopping around, because people, whether broker or bank, are more than willing to lie to you to beat out their competition initially, so they can lock you into a process which you cannot easily reverse. My recommendation is to speak with as many people as you can, but evaluate them on the basis of trust. You may find that the person who gives you the highest quote may be the only one telling you the truth. This is not a simple subject to discuss, and while we have tried to treat the subject thoroughly, a consultation with a refinancing specialist would be the best way to get answers specific to your situation.

Tristan Hunt is a seasoned financial professional with a wealth of experience in the mortgage business, advising clients on their biggest single investment at Refinance One, one of the nation’s leading specialty mortgage companies.

Phone: (800)515-8443
Email: Customers@RefinanceOne.net

Favorite Topics Include: Adjustable Rate Refinance,Fixed Rate Refinance & Fixed Rate Cash Flow Mortgages

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]]> http://www.refinance-refinance.net/2007/04/16/refinance-closing-costs.html/feed/ http://www.refinance-refinance.net/2007/04/06/risks-of-interest-only-mortgage-loans.html http://www.refinance-refinance.net/2007/04/06/risks-of-interest-only-mortgage-loans.html#comments Fri, 06 Apr 2007 12:54:52 +0000 staff Refinance http://www.refinance-refinance.net/2007/04/06/risks-of-interest-only-mortgage-loans.html The borrower needs only to pay monthly payments composed of interests and no capital for the first few years of the mortgage repayment program. However, these loans come with some risks that should be taken into account prior to applying.

These risks may imply that you?ll end up paying significantly higher amounts on the long run or worst that you may loose your property if you are unable to meet the monthly payments whether it is in the first stage of the loan repayment program or in the second one when the monthly installments turn more onerous due to the inclusion of the loan?s principal.

Overpaying Interests

To cover for the expected losses due to a higher default rate that these kinds of loans have, the lender will charge a higher interest rate than that of regular mortgage loans. This will imply that even if you get lower monthly payments at the beginning of the loan repayment program, you?ll end up paying a lot more on the long run.

Also, since you are not canceling any principal, the interests are always calculated over the whole loan amount as opposed to regular mortgage loans where the loan?s principal gets reduces every month and so do the interests on the loan. This fact alone implies huge savings that you are walking out on by choosing an interest only mortgage loan.

No Equity Generation

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During the first years of the mortgage repayment program, you won?t be generating any equity on your home. Equity is the difference between the property?s value and the amount of debt secured by it. Since with interest only mortgage loans you don?t cancel part of the principal at the beginning of the repayment program, equity won?t increase.

Equity is very important because you can always resort to it when you need finance during an emergency. If something happens and you can?t afford the monthly payments on your mortgage loan you can always refinance and obtain cash of your property to get back on track. But if you chose an interest only mortgage loan there will be no equity available and thus, no chances of obtaining extra cash out of your property.

Greatest Risk: Variable Interest Rate

If you selected an interest only mortgage loan because you couldn?t afford the monthly payments on a regular mortgage loan, you should be especially careful with variable interest rate mortgages. An interest rate variation can affect the monthly payments on a regular mortgage with variable rate slightly because only part of them is interests. Yet, on Interest Only Mortgage loans it can be disastrous.

An increase on the interest rate on a variable rate interest only mortgage loan can imply a significant raise on the amount of your monthly payments, and thus you may be unable to afford the monthly installments on your loan. Thus, if you choose an interest only mortgage loan try to make sure that you get a fixed rate mortgage or at least that you have enough available income ready in case your monthly payments increase.

—
Joycelyn Crawford is the author of the article you’ve just read.

If you want to keep on reading more tips written by her you can visit this website

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Technorati Tags: mortgage refinance, refinance, home refinance, bad credit refinance, bad credit mortgage refinance, loan refinance, home loan mortgage refinance, mortgage refinance information, refinance mortgage, home equity loan, home equity loans, equity loans, debt consolidation, debt consolidation loans, debt consolidation loan, consolidation loans, credit card debt consolidation, credit card consolidation

]]> http://www.refinance-refinance.net/2007/04/06/risks-of-interest-only-mortgage-loans.html/feed/ http://www.refinance-refinance.net/2007/04/02/fixed-rate-or-arm-what-are-the-advantages.html http://www.refinance-refinance.net/2007/04/02/fixed-rate-or-arm-what-are-the-advantages.html#comments Tue, 03 Apr 2007 00:57:50 +0000 staff Refinance http://www.refinance-refinance.net/2007/04/02/fixed-rate-or-arm-what-are-the-advantages.html All mortgages tend to fall into one or two basic categories - they are either a fixed rate mortgage or an adjustable rate mortgage. Among these two categories, however, there are many different options that allow you to get a mortgage that suits your personal needs. Here are some of the advantages of these two basic types that you need to know if you are considering buying a house.

A fixed rate mortgage gives you the predictable leverage of knowing that your payments and rate of interest stay the same throughout the length of the mortgage. There are no changes or adjustments of any kind during the term of the mortgage. The obvious advantage occurs when the interest rates, driven by the economy, changes for the worst. Since you are locked in to your rates, you will not be effected. On the other hand, a fixed rate mortgage may backfire, if the interest rates do drop during economic boom times. This could easily leave you paying much higher rates than others.

The advantage of fixed rate mortgages is obviously the stability it provides - you always know what your payment will be. There are a number of options that will give you greater or lower payments, though, such as the longevity of the mortgage. You can choose from 15-year mortgages, and then at various intervals, all the way now up to 50 year mortgages. The longer the loan, of course, the higher the amount of interest that you will pay throughout the term of the mortgage.

An adjustable rate mortgage, provides you with certain advantages that depend on both your own circumstances, as well as the economy. Most adjustable rate mortgages have a fixed rate portion of the loan, which typically, comes in 1,3,5,7, or 11 years. This portion of the loan allows you to enjoy a fixed rate for that period of time that you choose. This can be really good if the economy is doing well and the rates are low. It is this feature that could also allow you to get a larger house than you might be able to afford if you went for a fixed rate mortgage.

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Adjustable rate mortgages lock you in, for a few years to the rate at the time you bought the house. Usually this means that you have a lower rate than anyone who buys a fixed rate mortgage at the same time. At the end of the fixed rate portion, though, you will see an adjustment made that will reflect the market - whether it is good or bad. This means that you could see quite a large jump all of a sudden. It could be hundreds of dollars more - or it could even be less than what you were paying earlier - if the market is that good. An adjustable rate mortgage will usually have some limits on the amount of an increase there can be in any year. This increase, however, is one of many. Depending on your contract, it could mean that your adjustments are made on either a monthly or yearly basis.

In either case, there are pros and cons - all depending on the economy. The good thing is that there is always the possibility of refinancing - if need be. Be sure to compare any offers you receive in order to determine the best buy for your situation. Get several offers from different companies in order to see the possibilities, and you may want to get some advice from outside sources as to whether a fixed rate or adjustable rate is the best for you.

Joe Kenny writes for the Loans Store, offering re-mortgages offers, or view the latest adverse credit re-mortgage at NationsFinance.co.uk.
Visit today: http://www.ukpersonalloanstore.co.uk/

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Technorati Tags: mortgage refinance, refinance, home refinance, bad credit refinance, bad credit mortgage refinance, loan refinance, home loan mortgage refinance, mortgage refinance information, refinance mortgage, home equity loan, home equity loans, equity loans, debt consolidation, debt consolidation loans, debt consolidation loan, consolidation loans, credit card debt consolidation, credit card consolidation

]]> http://www.refinance-refinance.net/2007/04/02/fixed-rate-or-arm-what-are-the-advantages.html/feed/ http://www.refinance-refinance.net/2007/03/31/lower-your-mortgage-payments-with-mortgage-points.html http://www.refinance-refinance.net/2007/03/31/lower-your-mortgage-payments-with-mortgage-points.html#comments Sat, 31 Mar 2007 10:46:10 +0000 staff Refinance http://www.refinance-refinance.net/2007/03/31/lower-your-mortgage-payments-with-mortgage-points.html However, before purchasing mortgage points you should analyze the particularities of your desired mortgage loan and other factors that may affect whether you can take advantage of mortgage points or not. Though mortgage points can reduce the interest rate you pay for the mortgage, you need to put money down in order to obtain them and thus, only in the long run you can benefit from them.

Lowering The Interest Rate

If you wonder why anyone would want to purchase mortgage points, the answer is quite simple. By purchasing mortgage points you are reducing the total amount of the mortgage and thus the interest rate you?ll have to pay for the principal. A 0.5% reduction on your interest rate may not seem much, but over the full life of a 30 year repayment program, it can save you thousands of dollars more than it can cost you.

The interest rate reduction you can obtain by purchasing mortgage points will depend on your mortgage loan terms: the loan amount, the length of the repayment program, etc. Also, it will depend on the lender and on the money you have available so as to purchase the points. It makes no sense to worry about how you can reduce the interest rate by purchasing mortgage points if you don?t have the money to do so.

A Matter Of Time

There is an issue that you should take into account when considering purchasing mortgage points: The fact that it takes time to cover the costs of the mortgage points purchases and start saving money with the interest rate reduction. It really depends on the loan and the lender but you can think of an average of 5 years in order to cover for the costs and begin the savings stage.

Thus, it is important for you to know, as far as possible, whether you?ll remain owner of the property for at least ten years or not. If you plan to sell and move out in the near future, you won?t be taking advantage of mortgage points and thus, it would make no sense to purchase the mortgage points at all and you should actually refrain from doing so.

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Conclusion

Purchasing mortgage points can save you a lot of money over the whole life of a mortgage loan and can also provide you with lower monthly payments by granting a reduction on the interest rate you have to pay for the money borrowed. Mortgage points are a form of down payment that greatly reduces the risk of the transaction for the lenders and lets them provide lower interest rates.

However, it only makes sense to close on such deals if you plan to stay in that same property for many years. Otherwise, putting such high amounts of money down won?t be compensated by the interest rate reduction and the only ones obtaining any benefits from the transaction will be the lender and the next owner of the property.

—

Mary Wise, a professional consultant at Badcreditloanservices.com with twenty years in the financial field, prevents consumers from falling into the hands of fraudulent lenders. In her website you will find more useful tips and interesting financial articles on this and many other related topics.

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and resources visit Mortgage Refinancing.
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