Article 43


Thursday, May 07, 2009

Mortgage Refinancing


When and How to Refinance Your Mortgage

By Farnoosh Torabi
Main Street
March 2, 2009

If you’re considering refinancing your mortgage, prepare to pay up in the short term.

The reality is that no matter how frugal and financially responsible youve been, these days banks will slap you with refinancing fees. A good credit score, proof of income and equity in your home may enable you to negotiate a low interest rate, but refinancing charges are harder to haggle down. 

Consider the story of an actual couple, who wish to remain anonymous. Let’s call them Bob Smith and his wife Sue, both 40. They are among the country’s forgotten homeowners.

This upstate New York family agreed to an affordable mortgage six years ago and have since never missed a monthly payment. They resisted material temptations and LIVED BENEATH THEIR BUDGETS. (Meanwhile, foreclosures are up, one in seven property owners OWE MORE ON THEIR MORTGAGE than their home is worth, and Americans owe some $1 trillion on their credit cards.)

Now, with INTEREST RATES at historically low levels the Smiths have applied to refinance their mortgage, but say it feels like theyre getting punished with thousands of dollars in upfront fees. “The upfront costs are ridiculous,” says Bob. “I can’t figure out if the timing is right or if were even getting good terms.”

Good credit or bad credit, almost all banks will charge some type of refinancing fee.

And, as a recent article on our sister site BankingMyWay points out, GOVERNMENT-BACKED MORTGAGE LENDERS Fannie Mae and Freddie Mac are charging a premium on higher risk loans.

Any borrower with a score below 740 will get hit with extra fees, and anything below 700 is now considered a substantial risk. Depending on a combination of your credit score and the ratio of the amount of your loan to the value of your home, your upfront costs might increase by up to 0.75 of a percentage point of your new loan. (On a $200,000 loan, that translates into an extra $500, $1,000 or $1,500 in closing costs.)

How to Decide

The most important question to ask when deciding if refinancing is worth it is, “How much longer do I plan on living in my house?”

If the upfront refinancing costs outweigh the savings, given the length of time you plan to continue living in the house, then refinancing wouldn’t make sense.  But if it would be financially beneficial to you, dont worry about timing, as Bob points out.  Experts say you can’t control the future of rates or whether more significant help is on the way.  In this economic climate, now more than ever, households need to proactively protect their financial lives.

If you can refinance today, take the opportunity and don’t wait for the government or any institution to help you, says mortgage advisor and Internet talk radio host JOE GROSS.  “At the end of the day those are all long shots.”

For help, check out BankingMyWay dot com’s REFINANCING CALCULATOR.



Refinance Without the Fees

By Farnoosh Torabi
Main Street
March 6, 2009

At a distance, refinancing your mortgage to score a lower interest rate and reap some savings makes all the sense in the world. But for many homeowners who qualify for a refi, the upfront costs, which can be anywhere from three to five percent of the new loan, is very discouraging.

The good news is there are ways around the closing costs and fees.  Just ask Allison Cheng.

Starting in June, the 32-year-old homeowner from Queens, N.Y., will pocket around $400 a month thanks to a recent refi of her 30-year fixed mortgage. She reduced the interest rate from 6% to 5.125% with her existing mortgage lender, Wells Fargo .  She could have gotten an even lower rate from other banks, considering the national average on a 30-year fixed rate is around 5% according to BANKING MY WAY. But Wells Fargo lured her in with it’s “3 Step Refinance program” that eliminates those tough-to-stomach closing costs and fees.  Cheng estimates she saved anywhere from $7,000 to $16,000 in upfront costs based on quotes she received from OTHER LENDERS.  It was also a more convenient process.

“We applied by phone, faxed in some paperwork, signed and notarize the packet of documents...and we were done,” says Cheng. The entire process from phone call to approval took about two months.  She didn’t have to take time off work or hire an attorney for help. Even the envelope she sent back to Wells Fargo with her signed documents came with pre-paid postage.

If youre curious how to reduce your upfront costs, too, consider these two refi methods.

Streamline Refinance

If you have a loan secured by the Federal Housing Administration (or FHA) you may qualify for a streamline refinance, which is another way to speed up the application process and potentially reduce upfront costs. This program, which reduces the amount of paperwork and underwriting that needs to be done by the lender, has been around for close to 30 years.

“This is one of the original streamlining programs that was meant to try to encourage borrowers to refinance their loans,” says Bill Rice, managing editor of mortgage news site  Check out the FHA SITE to learn more about the program and borrower qualifications.

And in April, Fannie Mae and Freddie Mac introduced the Refi Plus program as part of President Obama’s MAKING HOMES AFFORDABLE plan, which should also speed up many more refi applications.  It will in some cases eliminate the appraisal fee, using an automated risk assessment system to appraise homes.  Refi Plus will also ease the traditional application requirements, making eligible some borrowers with lower credit scores.  Call your lender and ask if your loan is Fannie Mae or Freddie Mac-insured. Then see if you can qualify for a streamline refinance.

No-Cost or Low-Cost Refinance

Allison Cheng used a relatively new refi program, the 3 Step Refi, from Wells Fargo, thats basically meant to eliminate upfront costs for existing borrowers. In exchange you may have to assume a slightly higher interest rate over the loan’s term. Other banks are introducing similar programs that are called no cost, no out-of-pocket costs or low cost refinancing.  Experts say you should ask your existing lender about these specific options.

“Regardless of your situation you should be calling your lender and finding out if you are eligible for these programs,” Rice says.

Visit BankingMyWay to determine if a No-Cost refi program is worth it for you.


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