THE key and only answer is because they are keeping lending rates at all time lows. I suggest you better stop, listen and act on this. Why? Because if you can reduce your mortgage interest rate on your home, you will be saving money. There is a famous saying: “Money saved is Money earned.” Hard enough we have to try and save money, here is the opportunity and why aren’t you taking advantage of it.
The Government has several programs to help homeowners with minimal to negative equity borrowers to refinance, these are thru the HARP1 and HARP2 programs. I have written about these two refinancing programs.
A new program coming out June 11, 2012 would be the FHA streamline refinance program that will be a substantial help to FHA home borrowers with lowering monthly mortgage payments. This program has been around but with these new changes it will actually help more people. Here are the changes that I strongly believe should have happen when they initially came out with it:
*Reducing UPMIP (upfront Mortgage Insurance Premium) used to be at 1.75% to be added to your loan balance, now it will drop to only .01%.
*Limited income and asset documentation and no appraisal required.
*Monthly PMI (Private Mortgage Insurance) will be reduced from 1.25% to .55% monthly.
Most of you probably don’t understand that you have paid two separate Mortgage Insurance on your FHA loans. Hopefully this info helps.
Refinance your mortgage without extending the term
Obviously, the simplest way to refinance without extending the term is to select a new mortgage with a shorter term. How do you refinance your 30-year loan after paying for a few years to another 30 years loan without extending the terms is the questions? This is what banks don’t really want you to know if order for you to keep paying your mortgage sometimes never really paying it off. Much the best method is to refinance at the same term or a shorted term, but increase the payment by the amount required to amortize over the period you wish. Let me explain:
“I want to refinance my 5.25% 30-year mortgage, taken out in 2006, without starting the 30-year amortization period all over again. I read recently that the best way to do this is to borrow an amount equal to the original balance, then immediately prepay an amount equal to the difference between the original balance and the current balance. Do you endorse this?”
No, there are better ways to accomplish your objective.
Assume you took out a $250,000 fixed-rate mortgage in 2006 for 30 years at 5.25%. Your monthly mortgage payment was $1380.51. If you made no extra payments, your balance 5 years later would be $230,373.72. You now have an opportunity to refinance at 3.625% on a new 30-year loan, but you want to pay off in 25 years, as you would have if you hadn’t refinanced. There are 2 ways to do this.
Shorten the term
The simplest way is to make the term on the new loan 25 years instead of 30. Then your new payment will be $1168.65, which would still be below your current payment. The rate on 25-year loans is usually the same as that on the 30, but 20-year terms carry lower rates.
Increase the payment
A much better alternative is to refinance the current balance for 30 years, but increase the payment by the exact amount you were previously paying $ 1380.51, instead of paying $1168.65 which will take you for another 25 year full interest payment.
The beauty of this approach is that it is exact. If you are able to continue the $ 1380.51 payment that means you are actually reducing your principal balance from day 1 by $ 211.00 and that is all applied towards your principal reduction therefore will translate to your term reduction. Now your savings, if this is applied you would have saved 5 years and 7 months of interest payments totaling $ 29551.87 and actually reducing the 25 yr loan to 19 yrs and 5 months. If you would have stood still now and do nothing you wont enjoy the savings, even if you sell or refinance again, your balance would have been much lower due to your principal reduction options.
Of course, the extra payment is not obligatory, which can be viewed as a drawback or an advantage. It is a drawback if you lack the discipline to pay more than you are legally obliged to pay. It is an advantage if you have the discipline, and value the flexibility of being able to skip the additional payment in a pinch.
My best advice is to be able to refinance without any out of pocket loan fees and no closing cost added to your loan balance.
If you are refinancing again, we don’t charge closing cost and we also don’t charge points. Don’t get fooled by just looking at the rates being offered, remember to look at the overall picture. A “No Cost” loan might be worthwhile for you to do without having to pay cost to line up pockets of your lenders. A TRUE no cost loan should not have a loan balance increase for the cost, otherwise its not a TRUE no cost loan.
Paying closing cost will take years to break even on the payment adjustments, if you happen to refinance or sell within less than the break-even period, you would have lost that money.
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Please call me if you have any questions pertaining your existing mortgage or new mortgage, there are a lot of refinancing options even for FHA where they might actually not require an appraisal done on the property. Please call Ken Go of 1st Innovative Finance Group at 562-508-7048 or write to [email protected].
