Refinance

NEGATIVE SIDE OF REFINANCE MORTGAGES

Refinance mortgages have many advantages, but have disadvantages too. In a financial transaction, awareness about the risks is a must.
• Second mortgage defined
Second mortgage is a copy of the first. It is the loan taken against your own house, and the interest paid on it is tax deductible. The mortgage lender who has the first mortgage is gets the funds refunded from the defaulted loan.
• Versatile loan
If there is equity in the home, a second mortgage allows you to tap large sums of money at one time. The way funds are used is totally your decision. Some uses include home renovations, education, debt consolidation, and even paying for other mortgage insurance.
• Property at risk
All the loans taken against your house can turn into a huge negative, if you fail to make your mortgage payment. A bank could take over your home if you default on this loan and your primary mortgage.
• Delay in Payment
Late payments can include penalty to your credit report. When second mortgage interest rates are more than the rate of credit cards and are higher than first mortgage rates.
Think a while and then take the bold step after weighing the pros and cons.

REFINANCING: DEBTS AND TAXES

If you have a mortgage or refinanced mortgage, three main tax deductions related with owning the house are: mortgage interest, real estate taxes, and points paid. The tax facts relevant to refinanced mortgages are:
• Mortgage Interest
The interest of a refinanced mortgage is tax deductible. For owners who refinance to cash out equity and then use the funds for improving their home.
• Real Estate Taxes
Real estate taxes are deductible when they are paid to the property tax collector in the same year.
• Points
Points paid on a refinance mortgage are deducted according to proportion over the term of the loan. The points should be deductible in the first year of the term, if the refinance is used to fund home improvements

REFINANCING BOOM

Beginning of this year, the number of mortgage refinance applications increased due to a sudden drop in mortgage interest rates. Which ever direction the mortgage rates move, consumer activity always increases because people understand the nuances of the market and want to catch low interests rates as long as they last.

•  Loan term
If you plan to continue the whole term of the loan for several years, choose a refinance rate that saves money long term. Fixed rate loans are especially popular because they are not speculative.

• Need cash flow
A cash-out refinance puts the cash flowing into circulation, as rates are lower than consumer loans. It helps because interest paid on refinancing is tax deductible.

• Tap your equity
If you have equity on the house that could be used for a higher return, use a mortgage refinance to take it out and put it where it grows like investment in stocks

Instead of paying high rate of interest, calculate the amount and see how a refinancing mortgage might be able to save you money.

MORTGAGE REFINANCING FOR THE ENTREPRENEURS

The self-employed may have trouble qualifying for a loan or mortgage refinance. It is a good idea that self employed should consider becoming owners or tap into their home equity.
• Fixed rates and short terms
Many self-employed people opt for a fixed-rate mortgage instead of an adjustable-rate loan for easier planning. They can choose a shorter term, which allows them to pay off the mortgage earlier.
• The documentation hassle
It’s difficult for the self-employed to qualify for a mortgage loan due to complicated document needs and tax returns, bank and investment account statements as they need your pay-off balance and details about your current mortgager.
• Tax deductions
The drawbacks of self-employed are paying twice as much Social Security and Medicare taxes as an employee of a company. This is the reason why the tax deductions that mortgages provide should be greatly valued. These write-offs can help to lessen any heavy tax burden.
But as is the case for the ambitious entrepreneur, many of these hurdles are worth overcoming.

DON’T TAKE ADVANTAGE OF REFINANCE MORTGAGE

A refinance mortgage is a financial tool that can be a solution to many a problems. Need to finance a college education or redecorate the house? Your new mortgage will get the cash you need.

While it’s a great boon, it does have some shortcomings.

1. Mortgage rate hike can change your saving
If you plan to take a refinance mortgage to pay for your child’s college education and current rates are low. If in the future, high interest rates make borrowing very expensive, the ‘cheap loan’ would be very expensive, making it difficult to meet your monthly payments.

2. Bubble burst
If you purchased a home at a high, markets may have cooled. Taking a refinance, you find that your home doesn’t appraise as highly as it once did. So, there will be no available equity to borrow against, and you will be short on funds. If you’re planning some significant future expenses, increase your savings while you’re building equity

MORE MORTGAGE TERMS FOR COMMON USE (Part 2)

Taking a mortgage requires good understanding, a lot of detailing, calculations .So sound like a pro, when you talk business with the lenders. Some of the other terms are:
• Loan-to-value (LTV) ratio:
The difference in the ratio of your loan amount to value that has been appraised of your home. It is generally given as a percentage and a high LTV can lead to private mortgage insurance.
• Point:
A point on a mortgage is 1 percent of the total loan value.
• Term:
This is the length of time that you require to repay the mortgage loan. Generally expressed in years, the general term for most mortgages is 15 to 30 years.
• Third party fees:
These are charged by appraisers and financial companies, these are fees that your lender uses to assess the quality of your loan.
These are just a few of the mortgage terms in general use for your use. Read up on the details for better understanding.

KNOW THE TERMS OF REFINANCING MORTGAGE (Part 1)

It would be in your best interest, if you’re looking for a mortgage refinance, to understand the terminology. Learn a few basic terms, and you’ll be headed in the right direction.

·         Adjustable-rate mortgage:

This is a loan with an interest rate which changes periodically. The mortgage rate is pegged to a specific economic indicator such as the prime interest rate or treasury bills, so terms can vary greatly.

·         APR:

The Annual Percentage Rate (APR) is intended to include all of a lender’s closing costs,         giving a true yearly interest rate but are often calculated in different ways.

·         Fixed-rate mortgage:

When the rate is set at the time of closing in a loan and is same throughout the         mortgage term.

·         Good Faith Estimate:

Lenders are required by law to give a Good Faith Estimate, in which details of all        the costs that the borrower will be charged to close the loan.

HOW AND WHY TO REFINANCE YOUR MORTGAGE

Refinancing mortgage is a big way to reduce monthly payments, get a better interest rate, and gain additional time for repayment, but it should not be decided in a hurry. Refinancing at the wrong time can result in having to pay a higher payment.

Some simple suggestions to help you decide

• How do you refinance?

In order to refinance a mortgage loan, the bank or other lender that you take out the refinance loan through will handle all of the transfers and payment of the mortgage, though there may be some instances where you have to handle it yourself depending upon the specific lender that you use.

• When should you refinance?

The best time to refinance a mortgage is after a significant portion of the mortgage has been repaid and sufficient equity has built up. It’s important to have enough equity to cover the loan amount as it will secure the refinance loan

Care should be taken that you apply for your refinance loan at a time when interest rates are lower. To end up paying less interest will depend upon the term that you agree on for the refinance loan.

TERMS OF REFINANCE MORTGAGE

Refinancing refers to applying for a mortgage loan intended to replace an existing loan taken on the property. Owners of property usually consider refinancing for the purpose of getting a better interest rate, loan term, or to liquidate the cash equity.

Cash-out refinance: – a refinance in which the money received from the new loan is more than the total of the money needed to repay the existing first mortgage, closing costs, points.

No Cash out Refinance: – the amount of the new mortgage covering the remaining balance amount of the first loan, any liens, closing costs and cashes no more than 1% of the principal on the new loan.

Rate/Term Refinance: – obtaining a new mortgage for the purpose of lowering the interest rate or amount of time the borrower has to repay the loan

“BREAK-EVEN” PERIOD

The break-even period is the time before the savings from the lower rate completely covers the upfront refinance costs.

How Do You Find the Break-Even Period?

• Income tax: This is the tax rate on your total income. These federal tax brackets are 10%, 15%, 25%, 28%, 33%, and 35%. If you also pay state income taxes, you should add the highest bracket you used in connection with these taxes.

Remaining Term on present Loan: The number of months till the balance is paid if the payments remain the same.

Term on New Loan: For people looking for a fixed-rate mortgage (FRM), a 15-year term is the best bet.

Whether Points and Costs Are Paid in Cash or Financed: Finance the costs if you have to. However, having to finance the costs could swing the refinance from profitable to unprofitable.

Calculate them and then you will be able to find the break even costs easily.