Mary and Mark Henderson decided to refinance their home. Here is what they did, in case you may be considering home refinance.
Assess Your Home Loan Refinance
Mark still has the job he held for the past 20 years. Mary was laid off from her employment. This is one reason they wanted to refinance. Without Mary's income, they were having trouble making ends meet. Refinancing at today's low interest rates meant their monthly mortgage payments would be lower, while also reducing the amount of the interest they'd pay long-term.
Assess Your Credit Rating
Mary and Mark had managed to stay current on their mortgage payments. This meant they could still qualify for a refinance loan with a low rate. It also meant they were in a good position for a loan modification under the Obama Administration's Home Affordable Modification Program (HAMP) if they chose that route. Mark pulled his credit report and found no errors. Their credit score was 720.
Assess the Opportunities
Mary and Mark had an excellent relationship with their local bank, which was the holder of the current mortgage. Mark researched on MortgageRefinance.com and discovered that obtaining a mortgage loan at a bank where you already have an established relationship is not often the cheapest way to get a mortgage refinance in the current economic climate. Talking to MortgageRefinance.com brokers is the quickest way to find out the best mortgage offers.
Mark also discovered that mortgage rates are still at historic lows. He looked into the FHA loan refinance and loan modification options offered by the government, but decided this was not the route he wanted to take.
Mary checked mortgage calculators and determined their potential monthly savings would be more than $500.00 if they refinanced at the current interest rate. Mary and Mark made a decision to approach their local banker for a mortgage refinance.
The Application Process
Similar to applying for the initial mortgage loan, a mortgage refinance is a fairly straight-forward process. The bank will review your credit report. You must present proof of your ability to repay the loan (in the form of tax returns and W-2's), along with a list of your creditors and open accounts. A certified appraisal of the home is required.
You will be presented with all the loan options that are available to you.
For example, Mary and Mark carefully considered such things as FHA-backed loans, zero point options, no closing cost mortgage refinance and others.
Since money was in short supply in the Henderson household, Mary and Mark opted for a no closing cost mortgage refinance, and they asked the lender if he could waive fees such as the lawyer fees, appraisal and title insurance.
Potential Savings of Mortgage Refinance
As an example of mortgage refinance benefits, here are estimated payments for $200,000.00 on a 30-year fixed loan at two different interest rates.
Rate Estimated Monthly Payment
4.750% -- $1,043.00
9.00% -- $1,609.25
Here are some tips for finding the ideal mortgage refinance product for you:
- The advice to "shop around" is applicable to mortgages as well as any purchase. Interest rates and lending fees fluctuate from lender to lender. Take time to comparison shop for the right loan product to fit your needs.
- As you see in the graph above, the lower your interest rate, the lower your payment. Sometimes just a few points can make a dramatic difference.
- Check your credit report for negative or erroneous items prior to beginning the process of looking for a loan. Take time to correct any errors and try to pay off any negative items you can.
- Cash-out refinancing allows you to take the equity out of your home. If you need to pay off large items such as cars or credit cards, this may be an option.
- Some of the many good reasons to refinance include: paying off the loan more quickly (going from a 30-year loan to a 15-year loan), withdrawing equity, changing from adjustable rate mortgage to fixed rate mortgage, and lowering monthly payments with a lower interest rate.
- Gauge prevailing home values in your home town prior to committing to a mortgage refinance.
- Finally, be realistic in what you can afford. As a general rule, your monthly mortgage payment including payment, taxes, and insurance should not exceed 28% of your total monthly income.
Mark and Mary's story has a happy ending. They were able to save more than $500 per month on their monthly payments. This savings means the couple can keep their home even with Mary's reduced income. Sometimes a mortgage refinance story does not have a happy ending, however. If you borrow against your home equity, you may end up owing more than the home's value if prices decline in your neighborhood. If you spend the home equity on personal property like an expensive car, it will begin depreciating immediately, but you'll still be paying the loan for many years to come. Be careful to read all the fine print of loan products and as mentioned previously, shop around for the best deals and lowest interest rates.