My Way Lending

If you are considering refinancing your home loan but are unsure if a new mortgage is right for your situation, there are several good reasons for taking the plunge. Many homeowners refinance because they need a lower monthly payment, to borrow against the equity in their home, or to pay less with a lower mortgage rate.

Mortgage Refinancing Can Lower Your Payment

There are several ways to lower your payment amount when refinancing your home loan. Ideally, if you qualify for a lower mortgage rate you will pay less to the lender for your financing and your monthly payment will go down. Many people will tell you not to refinance unless you qualify for a mortgage rate that is two percent lower than your existing loan. This “two percent rule” is complete rubbish; you can determine if refinancing makes sense for your situation you should evaluate the loan on a cost/savings basis.

Start by looking at the total cost of the mortgage, fees, points, and closing costs and divide this amount by how much lower your new payment will be. This will tell you the number of months it will take for you to break even and realize any savings from the new mortgage. Just make sure the mortgage rate you are basing this decision on does not include Yield Spread Premium and you’ll be ahead of 90% when it comes to choosing the perfect mortgage loan.

Theft by Yield Spread Premium

If you’re unfamiliar with Yield Spread Premium, it’s the markup your loan representative adds to your mortgage rate for a commission. Mortgage companies and brokers mark up interest rates because the lender pays them a bonus of one percent of your mortgage amount for every quarter percent they mark up your rate. This bonus is in addition to the origination fees you’re already paying for their services. Fortunately for you, homeowners who learn to recognize this unnecessary markup can avoid paying it.

What happens if you can’t qualify for a lower mortgage rate and still want a lower monthly payment? Is mortgage refinancing still a good idea?

If you are unable to qualify for a lower mortgage rate there are several options for lowering your monthly payment amount. One way to lower your payment is to choose a mortgage with a longer term length. Term length is the amount of time you have to repay the loan. The longer the term length you choose, the more time your payment will be spread over. This results in a lower payment amount; however, you will pay more over the life of your loan in finance charges. Another option for lowering your payment is to choose an interest only mortgage. As the name implies, the payments for this type of mortgage are based only on the amount of interest due in a given month.

Interest only mortgages are a risky option for refinancing; however, homeowners who understand the risks can leverage this type of Adjustable Rate Mortgage to their advantage. You can learn more about refinancing your mortgage while avoiding costly problems with our free mortgage refinancing video tutorial.

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Everyone’s seen the television commercials claiming to get mortgage lenders competing for your business. Is refinancing your mortgage using a company with an advertising budget as large as Lending Tree a good idea? The answer to this question will surely surprise you.

Take a look at Lending Tree’s website and you’ll find a link at the bottom of the page called “Licenses and Disclosures.” About halfway down the page in the midst of Lending Tree’s legaleze is a statement required by the Attorney General of Massachusetts in big black type. I’m going to quote a portion for you.

“LendingTree, LLC is not charging you a fee to arrange a mortgage loan from the mortgage Lender. If you choose the traditional LendingTree, LLC path, LendingTree, LLC will be receiving a fee of up to $1,300 from the Lender for arranging this loan. The amount of this fee will be disclosed to you on the Good Faith Estimate you receive from the Lender you select.”

Here’s the problem in plain English. Lending Tree claims they are not charging you a fee for using their site; however, they receive a fee of $1,300 that you have to pay. Hold on a minute, they’re not charging you the fee, but you still have to pay it to them. This type of corporate legal speak is known as a “Computerized Loan Origination Fee.” Are they being honest and up front about this fee? Absolutely not, and this is why the Attorney General of Massachusetts requires this statement in big bold letters as a condition of doing business in that State.

Unfortunately, the problem of Computerized Loan Origination fees is not limited to Lending Tree. Most of the mortgage sites you find on the Internet have absolutely nothing to do with mortgage loans and exist only to collect your personal information so it can be sold to mortgage lenders. There’s nothing wrong with mortgage lead generation until a company like Lending Tree passes their fee on to you. You can learn more about refinancing your mortgage while avoiding costly mistakes like Computerized Loan Origination fees with our free mortgage tutorial.

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Mortgage refinancing offers several ways to pay off debts and reduce the burden on your monthly budget. Refinancing your mortgage could allow you to lower your monthly payments and pay off your credit cards and other high interest debts. Borrowing against the equity in your home could even allow you to purchase a new car. Lastly, if you’re able to qualify for a lower mortgage rate you can lower your payment and pay less to the lender over the lifetime of your mortgage.

Mortgage Refinancing to Consolidate Bills

Taking out a new mortgage allows you the opportunity to borrow against the equity in your home. You can use this cash for any reason including paying off your bills including those high-interest credit cards. The advantage of consolidating your debts under your mortgage loan is that you gain a tax-deduction for all of the interest you pay. Cashing out when refinancing is a convenient way of borrowing against your equity and allows you to qualify for a lower mortgage rate than you would get with a second mortgage or equity line of credit.

Mortgage Refinancing to Lower Your Payment

There are several ways to lower your mortgage payment even if you cannot qualify for a lower interest rate. You can still lower your payment amount by extending the term length of your loan. By switching to a 30 or even 40 year term length you’ll spread your payments out over a longer period of time. This gives you a lower payment and more cash at the end of the month.

Another way to lower your monthly mortgage payment is to switch to an Adjustable Rate interest-only or option loan. These are risky mortgages; however, when used correctly they could save you a lot of money. You can learn more options for saving money when refinancing your home mortgage with our free, six-part mortgage refinancing video tutorial.

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