When should I refinance?
Ever hear the old rule of thumb that states you should only consider refinancing if the new interest rate will be at least 2 points under your present rate? Maybe several years ago that was good advice, but since refinance costs have been falling recently, it may be a good time to look into it. A refinanced mortgage loan can be worth its cost many times over, factoring in the benefits that it brings, along with a lower interest rate.
When you refinance, you may have the ability to lower the interest rate and monthly payment , perhaps significantly. You may also have the option to “cash out” a portion of the built-up equity in your home, which you will be able use to consolidate debts, improve your home, or finance a vacation. With reduced interest rates, you might also get the chance to build your home equity more quickly by changing to a shorter-term mortgage loan.
Fees and Expenses
All these advantages do come with some expense, though. You’ll have the same sort of expenses and fees as with your existing home loan. Included in the list might be an appraisal, underwriting fees, lender’s title insurance, settlement costs, and other expenses.
Doing the Math
You could need to pay points (prepaid interest) to attain a lower rate of interest. If you pay (on average) three percent of the loan amount initially, the savings for the life of the refinanced mortgage can be substantial. Please consult with a tax professional before acting on rumors that any paid points may be deducted on your federal income taxes.
Another cost that a borrower might consider is that a reduced rate of interest will reduce the interest amount you will deduct from your taxes.
Call us at 310-791-0854 to help you do the math.
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Most people find that the savings per month balance out the up-front expenses of a refinance. We can help you find out what your options are, considering the effect a refinance might have on your taxes, how likely you might be to sell in the near future, and your cash on hand. Call us at 310-791-0854 to get you started.
Which Refinancing Program is Best for Me?
Even though it seems like it sometimes, there are not as many loan programs as there are borrowers!
Contact us at 310-791-0854 and we can match you with the loan program that is ideal for your needs. What do you hope to achieve with your refinance loan? Keeping in mind the following will help you begin your decision process.
Reducing Your Monthly Payments
Are your refinance goals to lower your rate and consequently your mortgage payments? In that case, getting a low, fixed-rate loan may be a wise option for you. Perhaps you currently hold a higher rate fixed rate mortgage, or perhaps you hold an ARM — adjustable rate mortgage — where the interest rate can vary. Even as interest rates rise, a fixed-rate mortgage loan must remain at the same, low interest rate, unlike an ARM. This is especially a good option if you don’t think you’ll be moving within the next 5 years or so. On the other hand, if you do see yourself moving before too long, an ARM with a small initial rate might be the best way to reduce your monthly payments. By refinancing your existing mortgage loan, you could wind up paying more in finance charges over the life of the loan.
Are you hoping to cash out some of your equity with your refinance? Your house needs new carpet; your daughter has been accepted to University and needs tuition; or you have a special family vacation planned. With this in mind, you will want to look for a loan higher than the balance remaining of your existing mortgage loan.With this goal, you want to qualify for a loan for a higher number than the remaining balance on your current mortgage. If you’ve had your current mortgage loan for a long time and/or have a loan whose interest rate is high, you may be able to do this without making your mortgage payment bigger.
Consolidating Your Debt
Do you hold other debt, perhaps with a high interest rate, that you’d like to consolidate? If you have the equity in your home for it, taking care of other debt with higher interest than the rate on your mortgage (like home equity loans, student loans, or credit cards) means you can save possibly hundreds of dollars in your monthly budget.
Building up Equity More Quickly
Are you hoping to fatten up your home equity faster, and pay your mortgage off sooner? If this is your hope, the refinance loan can switch you to a mortgage loan program with a shorter term, such as a 15 year loan. Although your monthly payment amount will likely be more, you will save on interest; so your equity will build up faster. On the other hand, if your existing longer term loan has a small balance remaining, and was closed a number of years ago, you may be able to make the change without paying more each month. To help you understand your options and the many benefits of refinancing, please contact us at 310-791-0854. We will help you reach your goals!
Should I get a fixed rate or adjustable rate loan?
With a fixed-rate loan, your monthly payment never changes for the life of the mortgage. The portion allocated to your principal (the actual loan amount) will increase, however, the amount you pay in interest will decrease accordingly. Your property taxes may go up (or rarely, down), and so might the homeowner’s insurance in your monthly payment. But generally payments on your fixed-rate loan will be very stable.
When you first take out a fixed-rate loan, most of the payment is applied to interest. The amount paid toward your principal amount goes up slowly each month.
You can choose a fixed-rate loan in order to lock in a low rate. People select fixed-rate loans because interest rates are low and they want to lock in at the lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer more stability in monthly payments.
If you currently have an Adjustable Rate Mortgage (ARM), we’ll be glad to assist you in locking a fixed-rate at a favorable rate. Call Midgate Mortgage at 310-791-0854 to discuss how we can help.
There are many different types of Adjustable Rate Mortgages. Generally, interest rates on ARMs are based on an outside index. A few of these are:
- the 6-month CD rate,
- the 1 year rate on Treasure Securities,
- the Federal Home Loan Bank’s 11th District Cost of Funds Index (COFI), or others.
Most ARMs feature this cap, so they can’t go up over a specified amount in a given period. Your ARM may feature a cap on how much your interest rate can increase in one period.
In addition, the great majority of ARM programs have a “lifetime cap” — the rate won’t go over the cap percentage.
ARMs usually start at a very low rate that may increase over time. You may have heard about “3/1 ARMs” or “5/1 ARMs”. In these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for a number of years (3 or 5), then adjust. Loans like this are usually best for borrowers who expect to move within three or five years.
You might choose an Adjustable Rate Mortgage to get a very low initial interest rate and plan on moving, refinancing or simply absorbing the higher rate after the initial rate goes up. ARMs are risky when property values decrease and borrowers are unable to sell or refinance.
Have questions about mortgage loans? Call us at 310-791-0854. It’s our job to answer these questions and many others, so we’re happy to help!
What Is Mortgage Insurance?
Private Mortgage Insurance helps you get the loan
Private Mortgage Insurance, also known as MI, is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. MI is provided by private (non-government) companies and is usually required when your loan-to-value ratio — the amount of your mortgage loan divided by the value of your home — is greater than 80 percent.
MI isn’t a bad thing — it allows you to make a lower down payment and still qualify for a mortgage loan. In fact without MI, many of us would not be able to purchase our first home.
How is MI calculated?
Your MI premium is fixed based on your total loan-to-value ratio and credit score and other individual characteristics. MI typically amounts to about one-half of 1% of your mortgage amount annually, according to the Mortgage Bankers Association, and the premium payment is usually rolled into your monthly mortgage payment.
The lower your credit score and down payment, the higher the MI or interest rate.
On a $200,000 mortgage, you may be paying $1,000 per year for MI. MI is not tax-deductible.
Are there various types of MI?
MI has several categories; borrower paid monthly(BPMI) or lender paid(LPMI); lender paid is rolled into the rate so you do not have to pay monthly but a higher rate instead. Sometimes it is cheaper to have a higher rate and no MI then it is to have a lower rate with MI.
Mortgage Broker vs. Loan Officer: What's the Difference?
When it comes to locating a mortgage loan, you should know the difference between a loan officer and a mortgage broker.
What is a Mortgage Broker?
A mortgage broker (either a company or an individual) is an independent agent for both the mortgage loan borrower and the lender. Your mortgage broker will stand as facilitator between you and the lending institution; which may be a bank, trust company, credit union, mortgage corporation, finance company or even an individual, private investor. You use a mortgage broker to consider your financial circumstance and lead you to the lender who has the right mortgage loan for you. From application to closing, your mortgage broker facilitates the loan process: submitting your loan application to several lenders, and walking you with the chosen lender through to the closing of the loan. If the loan closes, the broker’s commission is given by the borrower.
Lending Institutions (banks, finance companies, and others) employ mortgage bankers to market, and process mortgage loans originated by that particular institution alone. While a mortgage banker may market quite a range of loans, they all are products from that lender alone.
A loan officer (also known as an “account executive” or “loan representative”) represents the borrower to the lender. A mortgage banker will guide you through the application, processing and closing of the loan. Either a salary or commission is paid to loan officers by their employers.
Looking for mortgage advice?
We can assist you! Call us at 310-791-0854. Ready to begin?
Debt-To-Income Ratio Explained
Lenders use a ratio called “debt to income” to decide your maximum monthly payment after your other recurring debts are paid.
How to figure your qualifying ratio
Usually, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner’s insurance, property taxes, and homeowners’ association dues).
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.
Some example data:
With a 28/36 ratio
Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses.
If you’d like to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualification Calculator.
Remember these ratios are only guidelines. We’d be happy to go over pre-qualification to help you determine how large a mortgage you can realistically afford.
Midgate Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at 310-791-0854.
What Is A Credit Score?
Before lenders decide to give you a loan, they must know that you are willing and able to repay that loan. To figure out your ability to pay back the loan, lenders assess your debt-to-income ratio. To assess how willing you are to repay, they use your credit score.
Fair Isaac and Company calculated the first FICO score to help lenders assess creditworthiness. For details on FICO, read more here.
The minimum required FICO credit score for a conventional mortgage is 620, but very few buyers get approved with such low scores. In fact, 96% of approved buyers have a score of 650 or above.
Credit scores only assess the info in your credit reports. They never consider your income, savings, down payment amount, or factors like sex race, nationality or marital status. These scores were invented specifically for this reason. Credit scoring was developed as a way to consider only what was relevant to a borrower’s likelihood to repay the lender.
Your current debt load, past late payments, length of your credit history, and other factors are considered. Your score is based on both the good and the bad in your credit history. Late payments count against you, but a consistent record of paying on time will improve it.
To get a credit score, you must have an active credit account with six months of payment history. This payment history ensures that there is sufficient information in your credit to calculate an accurate score. Some borrowers don’t have a long enough credit history to get a credit score. They may need to build up credit history before they apply for a loan.
Looking for mortgage advice? We will be glad to assist you!
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Why Have A Home Inspection?
A home inspection will look at the systems that make up the building such as:
- Structural elements, foundation, framing etc
- Plumbing systems
- Electrical systems
- Cosmetic condition, paint, siding etc
If you are buying a home, you need to know exactly what you are getting. A home inspection, performed by a professional home inspector, will reveal any hidden problems with the home so that they may be addressed BEFORE the deal is closed. You should require an inspection at the time you make a formal offer. Make sure the contract has an inspection contingency.
Then, hire your own inspector and pay close attention to the inspection report. If you aren’t comfortable with what he finds, (defects that might require multiple thousands of dollars) you should kill the deal.
Likewise, if you are selling a home, you want to know about such potential hidden problems before your house goes on the market. Almost all contracts include the condition that the contract is contingent upon completion of a satisfactory inspection. And most buyer’s are going to insist that the inspection be a professional home inspection, usually by an inspector they hire. If the buyer’s inspector finds a problem, it can cause the buyer to get cold feet and the deal can often fall through. At best, surprise problems uncovered by the buyer’s inspector will cause delays in closing, and usually you will have to pay for repairs at the last minute, or take a lower price on your home.
It’s better to pay for your own inspection before putting your home on the market. Find out about any hidden problems and correct them in advance. Otherwise, you can count on the buyer’s inspector finding them, at the worst possible time.