Buying a home is a dream that many people cherish, and sometimes realize. Nowadays, there are various banks, lending firms and other financial organizations that offer a variety of home loans, thereby providing financial assistance to borrowers for buying a home and realizing their dreams.
There are two different types of home loans depending on the mode of interest rate. These include fixed-rate mortgage loans and adjustable-rate mortgage loans.
In case of fixed-rate mortgage loans, interest rates are fixed for the entire period of loan, which means that the borrower is required to pay a similar amount every amount towards mortgage payment.
In case of adjustable-rate mortgage loans, interest rates are low during the initial 2-3 years, but areadjusted periodically depending on the market index. In most cases, the adjustments cause an increase in monthly mortgage payments. Many borrowers default with their monthly payments primarily because they are unable to adjust to the increase in monthly mortgage payments. Defaulting with loan repayments causes a significant damage to the credit history of an individual. In most cases, these individuals end up as bad credit customers. Borrowers defaulting with their mortgage payments or having bad credit often face the risk of home foreclosure. Home loan refinancing is a useful solution for such borrowers.
Apart from paying off existing mortgage loan, people also use refinancing for different reasons. Home loan refinancing is useful in generating cash required for home renovations, for switching between fixed and variable interest rates, and also for obtaining a loan at a lower interest rate. Home loan refinancing is more profitable when the home equity value is high. One can obtain refinanced home loan at a very low rate using high home equity as collateral.
However, one should be really careful while opting for a home loan refinancing. Not every customer has a requirement for home loan refinancing. But, many customers opt for one under the influence of fraudulent loan brokers. It is important to consult an expert from an independent consultancy before considering for a home loan refinancing. Also, the consumer has to pay certain charges towards closing costs and prepayment penalties while going for refinancing, and this cost should be offset by the perceived benefits of refinancing. The entire exercise is useless if the saving is equal to the costs paid.
Home Loan Refinancing
Don't Panic - Refinancing Your Home is Easy
Do you remember a bank called, "Providian?" Some might, depending on where they are located in the United States, as it was not a nation-wide bank. For those who do not remember, Providian was one of the leading credit-card-issuing companies in the country, until it was bought out by Washington Mutual in 2005.
In following, Washington Mutual was bought out by JP Morgan Chase in September, 2008.
Both companies were known for their high approval-rate-percentages regarding credit cards. Washington Mutual was also known for its high approval rate in home mortgages.
As a former employee of Washington Mutual, I am now known as previously working for "one of the largest banking failures in history;" a quote regularly seen in the media. Washington Mutual was not the only bank that was seized by a larger, more powerful financial corporation in the fall of 2008. Wachovia was bought out, and caught in the middle of a messy battle for ownership rights by Wells Fargo and Citibank. Wells Fargo came out on top.
These banking disasters are partial contributors to some of the economic instabilitythat is prevalent in our society at the moment. More importantly, the failure of so many home mortgages has made potential home-buyers rather uneasy about investing their money in property.
The excessive rate of home-mortgage approvals in conjunction with Washington Mutual led to the failure of WAMU LLC and of people's ability to continue making payments on a loan they could never afford in the first place. Therefore, the sudden eruption of 'mortgage crisis's' that hit the media is the leading contributor to the surging panic people experience when debating on whether or not to invest their money in a home.
People are supposed to trust their banks. Washington Mutual could no longer be trusted as a helpful or honest lending source. Homebuyers must realize not all companies operate this way. If you are in the market for financing or refinancing your home, there are places that are dependable and will be responsible for getting our economy back on track.
Texas is a state that did not experience as devastating of a blow as some areas in the U.S. Property values in Texas are in their prime, making right now an opportune time to invest, as the values will skyrocket over the next few years.
Mortgage Refinancing: Five Excellent Reasons to Get a New Mortgage
If you are on the fence about mortgage refinancing, there are a number of great reasons to refinance your mortgage regardless of what interest rates are doing. With mortgage refinancing you can reduce your monthly payment, lower your interest rate, and even cash out equity in your home for any reasons. Here is a list of five excellent reasons to help you decide if mortgage refinancingis right for you.
I. Mortgage Refinancing to Reduce Your Monthly Mortgage Payment
The most common reason homeowners have for mortgage refinancing is to lower their monthly mortgage payments. There are several different ways to accomplish this. If you plan on staying in your home for a long time, consider paying a point or two in order to buy down your mortgage interest rate. If your financial situation has improved since purchasing your home, you may qualify for a better interest rate without points. If you are unable to qualify for a lower rate, you can still lower your monthly mortgage payment by extending the term length of your mortgage loan. Mortgage loans typically come with a term length of thirty years; however, there are now forty and even fifty year mortgages to choose from.
II. Mortgage Refinancing to Switch Your Adjustable Rate Mortgage (ARM)
If you purchased your home with a risky Adjustable Rate Mortgage and concerned with the risk of rising interest rates, refinancing to a fixed interest rate loan could give you the financial peace of mind you need. Fixed interest rate loans typically come with higher rates than adjustable rate mortgages; however, you can lower your payment amount with the new interest rate by extending the term length. A lower payment with a fixed interest rate mortgage will allow you to plan your monthly budget around the mortgage payment.
III. Mortgage Refinancing to Avoid Balloon Payments
Balloon mortgages are popular because they come with very low monthly payments; however, once the balloon payment is due you could be facing a financial hardship if you’re unable to pay. Refinancing to a fixed or adjustable rate with a long term length could match your current payment amount.
IV. Mortgage Refinancing to Stop Paying Private Mortgage Insurance
Many homeowners that purchase their homes with less than 20% down or borrow above a certain level of home equity are required to purchase Private Mortgage Insurance. Private Mortgage Insurance is expensive; the premiums can add hundreds of dollars to your monthly payment amount and does nothing else for you. Private Mortgage Insurance only protects the lender from losses if you default on the mortgage. Even if you have not build up sufficient equity in your home there are a number of mortgage refinancing programs to help you drop this costly insurance.
V. Mortgage Refinancing to Borrow Against Your Home’s Equity
Another popular reason for mortgage refinancing is to cash out equity in your home. This cash can be used for any reason: you can pay off credit cards, make repairs to your home, pay for college, even purchase a new car or take a vacation. With cash-back mortgage refinancing this is fast and easy. You even gain a tax deduction for the interest you pay when borrowing against your home equity.
To learn more abut your mortgage refinancing options, including costly mistakes to avoid, register for a free mortgage tutorial.
Mortgage Refinancing - Choosing the Best Mortgage Loan Option
If you are in the process of mortgage refinancing, you might feel overwhelmed by all of the mortgage loan options available to you. There are different types of mortgage refinancing loans for every situation; however, choosing the wrong type of loan when mortgage refinancing could be a costly mistake. Here are several tips to help you choose the right mortgage for your individualsituation.
Which Type of Lender Should You Choose When Mortgage Refinancing?
There are many options available when choosing a lender for mortgage refinancing. Banks, mortgage brokers, online portals, and local mortgage companies all offer mortgage refinancing loans. Choosing the wrong type of mortgage lender is a costly mortgage mistake you need to avoid. Banks and broker-banks should be avoided when mortgage refinancing. Banks are exempt from disclosure laws in the United States that protect borrowers from predatory lending practices. If you take out a mortgage from your bank they could overcharge for the loan and you’d never know. Mortgage companies and brokers are retail outlets for mortgage loans and can help you find competitive offers for your new loan. There are still risks when dealing with a broker or your local mortgage company. These companies regularly mark up the interest rates they receive from wholesale lenders to receive an additional bonus from that lender. If you learn how to recognize retail markup on your interest rate, you can avoid paying it.
What Type of Loan Should You Choose When Mortgage Refinancing?
There are a number of loan options when mortgage refinancing. You have the choice of taking out a loan with a fixed interest rate, an adjustable interest rate, or a hybrid loan with both types of interest rates. When interest rates are rising, mortgage refinancing with a fixed interest rate loan has the advantage of a predictable payment amount you can plan your budget around. Fixed interest rate mortgage refinancing typically comes with higher rates than a comparable loan with an adjustable interest rate, at least initially. Adjustable Rate Mortgages save money in the beginning because these mortgages come with an introductory interest rate that is significantly lower than the actual rate. Once the introductory period expires the lender will adjust the monthly payment amount to include the actual interest rate. When this adjustment occurs the payment amount will go up significantly.
Cash-out Mortgage Refinancing
When refinancing your mortgage you have the option of taking cash back from the equity you own in your home. Cash-out mortgage refinancing has a number of advantages over home equity loan options. The main advantage over other home equity loan types is that you will only have one monthly payment to make. Because you will only be carrying one mortgage on your home you will also qualify for a lower interest rate. You can learn more about your mortgage refinancing options, including common mistakes to avoid by registering for a free mortgage refinancing guidebook.
