Benefits of Refinancing a Home Loan

Nowadays, there seems to be so many options for mortgages. Although the total term of the mortgage may be amortized over twenty-five or thirty years, the home loan is typically re-signed or eligible for refinance at regular intervals. The time between due dates can be as long as five years, and as short as one year. By knowing that there is the opportunity to refinance a mortgage, and by knowing the exact date, those who have mortgages on their homes can actually budget more efficiently, and can impact their future financial well-being. Without doubt, renewing a mortgage has merit for the payer, and there are many benefits of refinancing a home loan.

Since refinancing a home loan is important, we have discussed the top main benefits of refinancing a home loan.

Shortens the Term of the Mortgage

Because you know when you are allowed to refinance your home loan, you can actually incorporate into your personal budget a time frame that best suits you paying off the mortgage entirely. For example, if you originally signed a mortgage contract that was amortized over twenty-five years and you receive a raise at work, you can now increase the payments, allocating the raise money to the mortgage, thereby decreasing the time required to fulfill the home loan requirements. In reality, your home will be paid off, and clear of title within a shorter period. Likewise, if you have paid off other loans such as a car loan or school loan, that money can be redirected to the home loan when refinanced.

Decreases the Amount of Mortgage when Paying a Lump Sum

Much like reallocating new available monies, if you receive a bonus at work, or you have been able to save a lump sum amount, you can apply those monies to your mortgage at the time of refinancing. This allows you to reduce the amount you actually owe which in turn saves you considerably on interest over the long term, and permits you to reduce the number of years involved in the amortization.

Allows “Gambling” on the Interest Rate

If economic indicators predict that interest rates are bound to fall, refinancing a home loan would be hugely beneficial, especially if you keep the payments at the same amount. In this scenario, your payments will be going to more of the principal instead of interest. Even if you decide to lower your payments with the new schedule, you can use the extra money saved from the decrease in interest rates to buy or invest in something else.

Allows You to Review Your Options

Agreeably, if you were required to lock in your home loan for the duration of the amortization period, you would never be able to react to other factors in your budget or economic situation. Further, being able to refinance a home loan on a specific date allows you to review your options and find a competitor with whom to sign. His offer may be much better than your existing contract.
Concluding, the ultimate goal of most individuals is to own their homes as quickly as possible. In order to build greater equity in a shorter amount of time requires the ability and the permission to refinance their home loans.

More Information

A Consumer’s Guide to Mortgage Refinancing

Refinance a Home Mortgage Loan

Weekly News Roundup, Friday November 13

Happy Friday the 13th! Here’s the interesting mortgage news from this week:

Mortgage Rates Are Climbing

Mortgage rates climbed for the second straight week amid anticipation of a Federal Reserve interest rate hike and a strong jobs report, mortgage provider Freddie Mac said Thursday. The 30-year fixed-rate mortgage averaged 3.98% in the week ending Nov. 12, up from 3.87%. The 15-year fixed-rate mortgage averaged 3.20%, up from 3.09%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.03%, up from 2.96%, and the 1-year Treasury-indexed ARM averaged 2.65%, up from 2.62%.

http://www.marketwatch.com/story/mortgage-rates-rise-for-second-straight-week-freddie-mac-says-2015-11-12

When will the Fed raise interest rates anyway?

LoanDepot Postpones IPO

Mortgage lender LoanDepot has postponed its plans for an initial public offering following concerns over the pricing environment in the public markets.

LoanDepot, which has swiped market share away from traditional banks, “decided to withdraw from pursuing an IPO at this time due to market conditions,” spokesperson Julie Reynolds said in an email.

http://www.usatoday.com/story/money/2015/11/13/loan-depot-initial-public-offering-ipo/75697076/

LoanDepot, like Quicken Loans, is a mortgage bank rather than a traditional bank. They’re largely known for buying mortgage leads from consumers shopping for home loans on the Internet. It’ll be interesting to see what happens with this one.

Mortgage Schemes Just Don’t Pay

A former Boston real estate developer from Mansfield is now serving an 11-year prison sentence for orchestrating what federal prosecutors say was one of the largest residential mortgage scams perpetrated in state history.

Michael David Scott, 51, of 40 Old Stable Drive, in Mansfield, was also ordered to pay almost $11.4 million in restitution and forfeit $7.4 million. He will also be on probation for five years after his release from prison, according to the U.S. Attorney’s office.

http://www.thesunchronicle.com/news/local_news/mansfield-man-gets-years-in-jail-for-boston-mortgage-scheme/article_01edfe54-8a15-11e5-a58d-0b9b27c4fca2.html

Using a Reverse Mortgage for Retirement Planning

Strategic use of a reverse mortgage can improve retirement outcomes. The benefits are non-linear in nature, as they relate to the synergies created by reducing sequence risk for portfolio withdrawals and to the non-recourse aspects of reverse mortgages that can potentially allow a client to spend more than the value of their home. This article explores six different methods for incorporating home equity into a retirement income plan through the use of a reverse mortgage.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2685816

We’ve been extolling the virtues of reverse mortgages for years. Click here to learn about many of the top rated reverse mortgage lenders.

Guide to the FHA Streamline Refinance

FHA Streamline Refinance Loans

FHA which stands for Federal Housing Administration, a self-sufficient government agency providing mortgage insurance, is the largest insurance provider in the world with over thirty-four million insured properties throughout the US and its territories. Created in 1934, the program reduces the risk for FHA approved lenders by paying out claims due to losses from defaulted mortgages. Typically, the insurance premiums are paid monthly by the home owners as part of their mortgage payments, and are usually required by lenders when down payments are very low, thus, the debt-to-equity ratio is high. Once five years has passed, or the debt is seventy-eight percent of the property value, whichever is longer, the insurance costs will drop.

Through the years, the FHA has had different programs for different financial crises in the economy. One of these features is the FHA Streamline Refinance Loans, established in the 1980s. It permits lenders to offer refinancing with less strict rules than traditional home loan refinancing. In effect, it streamlines the process, or rather reduces the amount of documentation required. To qualify for streamline refinance loans, there are four general points:

  • The existing mortgage must be FHA insured.
  • The mortgage to be refinanced must be in good standing with no arrears.
  • The refinanced mortgage should have the end result of reducing the home owner’s payments through a reduction in principal owing and interest rate.
  • Cash-outs are not permitted.

Although streamline loans in themselves do not mean “no-cost loans”, the lenders do have the option of various types of streamline refinance loans. The first is where there are no cash outlays. That is to say, that the borrower is not required to have any cash to close the deal. Typically, the lender will choose a higher interest rate, out of which the costs of closing will be recouped. This results in no out-of-pocket expenses for the home owner. Contrarily, if the borrower can manage the closing costs from their own cash, the interest rates are more attractive.

Further, another way a lender can structure FHA streamline refinance loans, is to add the closing costs to the total amount of the loan. This is only permitted in circumstances where there is adequate equity. Should the proposed loan amount be close to the value of the home, an appraisal will be required to ensure that the home is not mortgaged for more than its present market value. The beauty of streamline refinance loans for those with plenty of equity, there is no need for an appraisal.

Here are some quick points listing the Pros and Cons of Streamline Refinance Loans for Home Owners:

Advantages:

  • lower monthly payments through reduced principal owing and interest
  • where equity is sufficient, no appraisal required
  • no income verification in most instances
  • quicker processing time due to less paperwork
  • FHA loans are assumable which means when interest rates are higher than the existing mortgage, it will be easier for the home owner to sell, as the buyer will want to assume a mortgage locked in at a lower rate.
  • Finally, it is not a requirement to live in the home that is being refinanced. Investment properties are permitted under the FHA Streamline Refinance Loans program.

Disadvantages:

  • With conventional mortgages, insurance is only required for a minimum of two years. In the case of FHA streamline refinance loans, the minimum time frame is five years.
  • No cash-outs
  • Amount of loan may be limited depending on the geographical location.
  • Some say that the insurance premium required actually reduces the equity if you had the chance to put it into a down payment. Obviously, you need to look at your own individual case to make that determination.