What Does it Mean to Refinance a Home Mortgage?

Refinancing a home loan is an everyday practice. There are
several reasons to contemplate a refinancing. For starters, if
you attain a cash-out refinancing, the mortgage company will
hand over a lump sum of money at closing. Prior to this,
homeowners apply for a new home loan, which replaces the old.
In addition to creating a new mortgage, homeowners also borrow
money from their home’s equity. For example, refinancing an
existing $125,000 mortgage, and borrowing $25,000 of the home’s
equity will produce a new mortgage of $150,000.

Advantages of Refinancing an Existing Mortgage

If your intent is to become debt-free in the shortest amount of
time, refinancing your home is a great alternative. High
interest credit cards are difficult to eliminate. Unless you
are able to make large payments, it may take ten to twenty
years to payoff a $2,000 credit card balance. Moreover, a new
mortgage is great for acquiring funds to make home
improvements, build a savings account, or plan for retirement.
Homeowners with poor credit may increase their credit rating
upon reducing or eliminating consumer debts.

When is the Best Time to Refinance?

For many homeowners, now is a good time to refinance their
current mortgage. Individuals who obtained home mortgages
before rates began to decline are likely paying two or three
percentage points above the current average. Refinancing for a
lower rate may decrease your mortgage payment. Moreover,
refinancing may eliminate private mortgage insurance.

With low mortgage rates, refinancing for a fixed rate or
interest-only option may be favorable. Before refinancing,
count the costs. Remember, refinancing will entail paying
closing costs. If the monthly savings are insignificant, or you
plan on moving in less than five years, you will not benefit
from a refi loan.

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A full 40% of home loans originated in 2005 and 2006 are
estimated to be from the 1% mortgage family, with multiple
payment options. By its proponents, the success of the 1%
mortgage has been hailed as a new era of affordability and
flexibility, of an extremely sharp financial tool once
available only to the very rich now available to every family
in the country. Its opponents tend to think that the 1%
mortgage is a bit too sharp for the average homeowner to
handle, they fear =ECAverage Joes=EE could conceivably cut
themselves. Despite their division, one thing is certain, the
popularity of the 1% mortgage is driven by the relentless
pursuit of the American dream. There are more homeowners in the
United States today than in any other period in history, and
many of those who own homes have only been able to accomplish
home ownership, which was once a lifelong achievement, in their
early 20’s and 30’s, largely because of the extended
availability of these 1% mortgages to normal borrowers.

How much less expensive is a 1% mortgage payment option versus
the comparable 30 Year Fixed traditional principal and interest
payment?

For a $500,000.00 Mortgage:

1% Minimum Payment: $1200.00
Normal Loan Payment: $3000.00
—————————–
Cash Flow / Savings: $1800.00

It’s easy to see why the 1% mortgage refinance is so heavily
marketed as a way to cut your mortgage payment in half. In the
above example, the 1% mortgage minimum payment option is 60%
less than a typical, traditional principal & interest loan
payment. 1% mortgage minimum payments are usually 50% lower
than even the highly lauded Interest Only payment mortgages,
and most loans in the 1% mortgage family include the ability to
pay more than just 1% if need be.

So How Does it Work?

In fact, 1% mortgages are more than just the 1% start rate.
They have a fully indexed rate as well, which is the true
amount of interest due each month. When making a 1% mortgage
minimum payment, the borrower is not paying all of the interest
due, which is seen by some as a good thing and some as a bad
thing. Let’s examine some of the commonly perceived benefits
and caveats of 1% mortgages:

Commonly Perceived Benefits of the 1% Mortgage Family:

1. Extremely Low Monthly Minimum Payment: As we’ve seen in our
example, the minimum payment option is less than half of the
typical traditional mortgage payment.

2. Flexibility to Control Your Own Money: Unlike a traditional
mortgage, which requires a payment to principal each month, 1%
mortgages allow borrowers to take the power into their own
hands to make principal payments when they want to, e.g after a
bonus or a particularly good year.

3. Separate Cash Flow from Equity: While many personal finance
pundits laud the benefits of building home equity, the reality
is that investing home equity yields a 0% return on investment
on a month to month basis. In the above example, paying the
traditional principal and interest payment forces the borrower
to invest $1800 more each month in their home, money which is
locked up entirely in the equity of the home. Home Equity is
illiquid, meaning all this money locked in equity cannot be
accessed unless the home is sold or refinanced. The bank won’t
cut a check each month for the borrower’s home equity in a
traditional loan. With a 1% mortgage minimum payment, that
$1800 difference in payments is money in the borrower’s pocket,
to invest or spend at their discretion. By deferring interest
using a 1% mortgage, the borrower has full access to money that
normally would be locked up until they sold the property. That
$1800 per month adds up to over $100,000.00 in cash over 5
years on a 1% mortgage, and it’s available every time your
paycheck does not get used up paying a huge traditional
mortgage payment each month.

4. Maximize Debt Consolidation: Using a 1% mortgage refinance
to pay off all of your other creditors, such as credit card
companies and high interest rate lenders, means that you can
save even more money than with a 1% mortgage refinance alone.
Since you aren’t throwing high interest money at your creditors
each month, the cash which you save by making the 1% mortgage
payment actually goes into your pocket, your savings, your
investments, or wherever you need it most. That’s ultimate
control. Let’s say that in our $500,000 1% mortgage example
above, we rolled in $30,000 of credit card and other high
interest debt that have a monthly minimum payment requirement
of $1,000. By using a 1% mortgage refinance to pay off those
debts, total monthly savings using the earlier example would be
over $2800 per month, $1000 from the debt consolidation plus
$1800 from the difference between the traditional loan payment
at 6% and the 1% mortgage minimum payment.

5. Turn Equity into a Tax Deduction: First, the 1% mortgage
payment is 100% interest and therefore should be 100% tax
deductible in most cases. Secondly, One of the most attractive
benefits of 1% mortgages is the additional tax deduction
available on deferred interest. What this means is that
borrowers can realize a tax deduction on interest they did not
have to lay out the cash for, and choose the time at which this
deduction is realized, which can be a huge savings upon
liquidity or refinance. For real estate investors, this is a
huge advantage as it can often wash out the capital gains
consequences of selling a property. Disclaimer: We do not
dispense tax advice, and you should consider consulting a CPA.

6. Easy Qualification: Normally, to qualify for low payment
mortgages, borrowers are required to have exceptional credit.
However, 1% mortgage refinance loans are routinely available to
borrowers with credit scores as low as 620, and if they are
borrowing less than 80% of the value of their home, scores can
even be in the 500s provided there are no late mortgage
payments reported on their credit file. The borrower’s income
can be stated, and sometimes no income or employment
documentation is required at all.

7. Enhanced Protection from Foreclosure: Because the minimum
payment option is so low, the cash savings each month so high,
and the loan is so flexible, the 1% mortgage family offers
homeowners a low minimum payment option which they have a much
higher likelihood of paying should they suffer an interruption
of income or become disabled.

8. Biweekly Payments: A popular way to maximize the benefits of
the 1% mortgage refinance is to elect to make biweekly payments
(which are available on select 1% mortgages). This optimizes
the loan to coincide with most borrower’s payment cycles and
reduces any possible negative effects of deferring interest.

Commonly Perceived Caveats of the 1% Mortgage Family:

1. Artificially Low Payments: Because the minimum payments are
so low compared to traditional mortgages, many pundits fear
that people who would normally not qualify for home ownership
can now own a home. The fear is that new or =EClow income=EE
homeowners could =ECget in over their heads=EE by buying more house
than they can truly afford. Ultimately, it is up to the borrower
to decide how much they can afford.

2. Deferred Interest: Often referred to as negative
amortization, this concern is commonly cited by journalists as
a =ECnegative=EE because the loan balance may increase over time if
the minimum payment is always selected. However, this
perspective does ignore the advantages of dramatically
increased cash flow in the borrower’s pocket each month and the
tax benefits of deferring interest. Of course, the borrower can
choose for themselves whether they want to spend their money
paying interest to the bank or if they would rather put the
difference into their own pockets.

3. Depreciation: If the value of the borrower’s home falls
dramatically, and other factors force the borrower to sell the
home while the value is low, the borrower may wind up owing
more than the home is worth. This is a valid risk over short
periods of time for all types of mortgages, not just 1%
mortgages. Even a traditional principal and interest mortgage
does not pay off enough principal over the first 5 years of its
life to offset a dramatic short term decline in home values. The
risk of property values declining is a real risk of owning
property, period. However, history tells us that residential
real estate appreciates consistently over any given ten year
period in the past 50 years.

4. Too Easy To Qualify: This may not seem to be a disadvantage
to most borrowers looking to purchase or refinance a home, but
there are those who believe that borrowers should be forced to
document significantly more income and assets to qualify for
these types of loans. A lot of this sentiment is an outgrowth
of antiquated conceptions of 1% mortgages as a =ECRich Man’s
Mortgage=EE, which used to require significant net worth to
obtain, and some of it is attributable to equally antiquated
=ECone size fits all=EE notions about mortgages. Your perspective
will likely depend on whether or not you are in a position to
provide extensive documentation of your income and assets in
support of your loan application.

Many of the criticisms of 1% mortgages revolve around the
adjustable rate variety of these mortgages, which like all
adjustable rate mortgages go up and down with the rest of the
market. However, in most 1% mortgages, the minimum payment
stays fixed and can go up or down only 7.5% per year. So if
your payment in Year 1 is $1000.00 , in Year 2 it can go no
higher than $1075.00. Because the rate on the loan can change
more or less than the minimum payment, which is extremely low,
the loan can result in the deferral of interest if only the
minimum payment is made. Many of the amortization issues which
are seen by critics of 1% Mortgages as their key detractor have
been recently resolved by the introduction of fixed rate minimum
payment loans to the 1% mortgage family.

Fixed rate 1% mortgage variations, the latest additions to the
1% mortgage family, have fixed interest rates from 3 to 30
years or more. The minimum payment option is generally
available for the first 5, 10, 15 or in some cases 20 years of
the mortgage, at which point the 1% mortgage payment recasts or
readjusts to the interest only payment or the full principal &
interest payment. During the fixed period, the loan payment and
interest rates of fixed 1% mortgages are utterly predictable and
can be defined down to the penny. Many borrowers who would
prefer a fixed rate can benefit significantly from the 30 year
fixed 1% mortgage, which actually carries a minimum payment of
1.95% and a fixed rates in the 6% to 7% range for 30 years.

While there are those in the journalism community who believe
that 1% mortgages have too much power for your average
homeowner, ultimately the decision is in the homeowner’s hands.
Make a high payment to the bank each month, or put the money in
their pockets. And homeowners seem evenly divided, as
refinances into loans from the 1% mortgage category are
projected to represent over 50% of all refinances in 2007.
Traditional mortgages are not a one size fits all solution, and
neither are 1% mortgages, but with low minimum payment options,
excellent debt consolidation capabilities, significant cash
flow and tax advantages made possible by deferring interest,
and flexibility to control your finances or insulate yourself
from interruptions in income or disability, 1% mortgages
continue to post significant growth across the country. Whether
or not a 1% mortgage refinance is right for you should be
determined by performing a detailed analysis of your personal
financial situation with a home loan professional who has
extensive experience with 1% mortgage products. As always, we
welcome your calls and emails.

About The Author: Tristan Hunt is a seasoned financial
professional with a wealth of experience in the mortgage
industry, advising clients on debt consolidation, refinancing &
investor loans. Phone: 800-515-8443 Website:
http://www.RefinanceOne.net

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Benefits of a Low Rate Mortgage Refi Loan

If you are hoping to save money on your mortgage payment,
refinancing your current mortgage is the solution. Refinancing
is not ideal for everyone. Prior to applying for a new loan,
take into consideration current mortgage rate, length of time
you plan on residing in your home, and credit score.

If your current mortgage rate is comparably low, perhaps one
percentage point higher than current averages, you may not
realize huge savings from a refinancing. Moreover, if your
credit is less than perfect, some lenders may not offer superb
low rates.

Secondly, refinancing benefits homeowners who plan on living in
their home for more than seven years. If you plan to move in a
few years, the closing costs and fees paid will outweigh the
savings.

Savvy Buyers Shop Around

If contemplating a refinancing, shop around for the best loan
package. No obligation quotes are offered by various lenders.
You have the option of choosing a local lender or an online
lender. Before making a decision, request a quote from your
present mortgage company. This is beneficial for two reasons.
One, a good payment record has been established. Two, present
lenders may waive some fees. Although current lenders may remit
a great offer, do not make an immediate decision. First, obtain
quotes from three additional lenders.

What are Online No-Obligation Quotes?

If you request a quote from an online lender, the lender will
assess your stated credit rating, income, desired loan amount,
and submit an estimated loan offer. Quotes include terms,
interest rate, closing costs, and estimated monthly payments.
This way, you can review several loan options before finalizing
your decision. After acquiring three additional quotes, compare
all four lender offer’s side-by-side. Pick the lowest rate
mortgage refi loan. Lastly, complete an online application. At
this time, the lender will review your credit report and offer
a final approval notice.

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Home Equity Loans

Included in home equity loans are home equity lines of credit.
You can decide how much of your equity you want to use as
collateral for the loan. Equity is how much you =ECown=EE of your
home. It is the difference between how much you have left to
pay on your home loan and how much your home is worth on the
current market. You can borrow part of your equity, or you can
borrow all of it. Additionally, you can choose how you want to
receive the money: as a lump sum or as a line of credit. This
can allow you some flexibility. If you choose the line of
credit, you don’t have to borrow up to the limit, but more is
available if you need it.

Refinance Loans

While some of the accumulated equity in your home is used in a
refinance loan, the loan is really meant to establish new terms
for your loan. The entire mortgage is redone, and some of the
accumulated equity you have can be added in for a =ECcash out,=EE
where you take cash and your home is refinanced for an amount
that is higher over all. You have no decision as to how to take
your loan. It is lump sum. It is applied to =ECpay off=EE your =ECold=EE
mortgage, and the remainder, the =ECcash out=EE portion, is given to
you. Usually, it is possible to spread the terms out over a
longer period of time than a home equity loan, and you usually
end up with a lower interest rate.

Home Equity Loans vs. Refinance Loans: Which is Best For You?

You have to decide which would work best for you. If your
purpose is to mainly to fix an interest rate or change the loan
term to something longer or shorter, and maybe get a little
extra cash to pay some bills or take a vacation, the home
refinance loan may work best for you. However, if you are
looking for flexibility, and you are not sure exactly how much
you need, a home equity loan, in the form of a line of credit,
might be your best option. Do your research, though, and shop
around for a loan that suits your specific needs.

About The Author: Visit http://www.homeequitywise.com for more
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Reducing Your Interest Rate

If you are doing a straight refinance, and you want a lower
interest rate, this is what the streamlined VA refinance home
loan is designed for. There are special considerations that
make it a very easy choice when you are ready to refinance your
VA home loan:

1. Such loans have no maximum loan amount
2. You can avoid paying mortgage insurance premiums
3. A streamlined VA refinance home loan does not require an
appraisal
4. Verification of your assets, as well as your income, is
skipped in this loan process
5. There are no costs that you have to pay up front
6. A small funding fee of .5% is all that is charged to you as
a closing cost

Convenient Process

Because you do not have to jump through the same hoops as other
people do when it comes to a VA home loan refinance, you can
feel confident that you are saving thousands of dollars in the
long run by taking advantage of the special streamlined process
the VA offers to veterans who want to refinance their VA home
loans.

Other VA Home Loan Refinance Options

If you want to do more than simply lower your interest rate,
you can do so by getting a cash-out VA refinance, or a debt
consolidation loan. However, getting this loan is not as easy
as taking advantage of a straight, interest rate reduction home
loan refinance. The amount of equity in your home will have to
be determined. Additionally, you should realize that you can
only borrow up to 90% of your home%rsquo;s value. You can use a
cash-out loan for things like home improvements or a well
deserved vacation.

About The Author: Visit http://www.refinancesmarts.com for more
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Refinancing.

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Mortgage refinancing involves paying off your earlier debts
with the new loan amount. You get to enjoy a number of benefits
from refinancing your mortgage.

The most important advantage of home refinance is that it comes
with a considerably lower interest rate. Homeowners generally
have to carry a heavy mortgage payment every month, so
homeowners are often on the lookout for ways to reduce their
monthly mortgage payment. The only way of accomplishing this
goal is through home refinancing at a lower interest rate,
meaning lower mortgage payments.

The mortgage loans come with two types of interest rates,
namely fixed rate and adjustable rate. Refinancing your
mortgage also allows you to switch from a fixed rate to an
adjustable rate of interest. The mortgages with adjustable
rates are the most cost effective when the interest rates are
low. In contrast, fixed rates mortgage loans are the wiser
option when interest rates are high. It is also a good idea to
change the mortgage from a fixed rate to an adjustable rate
when the interest rate starts going down.

In many cases owning full equity of your home generally
requires a period of over thirty years to pay off the mortgage.
Refinancing your home allows you to cut the mortgage duration
shorter by several years and you will be able to own full home
equity in approximately half the time. This will save you
thousands of dollars on your interest payments while building
up your home equity over the years.

The best part of mortgage refinancing is that it provides you
with a huge amount of extra cash. The equity you have built in
your home over the years entitles you to this extra cash from
refinancing. You can use this extra cash for many purposes,
ranging from debt consolidation to home improvement to funding
your children’s higher education.

In a nutshell, if you want to make a smart financial decision
that will allow you to save and gain some extra cash at the
same time, there can be no better solution than mortgage
refinancing.

About The Author: If you are considering Mortgage Refinancing
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What is a Mortgage Broker?

A mortgage broker is someone who works with lenders in order to
help you get financed for a loan. A home loan refinance mortgage
broker works to help you find a lender that will fund your home
loan refinance. The broker acts as a go-between you and the
lender. It is important to realize, however, that you are not
getting your mortgage refinance from the broker. He or she is
merely facilitating your home loan. Your refinance mortgage
will actually be serviced by a lender. Once the broker gets you
and the lender together, his or her work is mainly done.

What Does the Mortgage Broker Do?

A home loan refinance mortgage broker can help you with all of
the paperwork necessary to get your refinance mortgage
approved. He or she will help you understand what documentation
you need to gather, as well as help you fill out the necessary
forms. A mortgage broker can take you through the steps of the
home loan refinance process. Additionally, a home loan
refinance mortgage broker can help you determine the kinds of
terms that work best for you. He or she can help you look for
good interest rates, as well as loans with lower closing costs
and loans with a term-length that is acceptable to you.

Finding a Mortgage Broker

Most places have a mortgage broker nearby who can help you with
your home loan refinance. You can usually locate them in the
phone book under =ECbrokers=EE or =ECreal estate.=EE When looking for a
home loan refinance mortgage broker, you want to make sure that
you are comfortable with him or her, and you should look for
someone who takes the time to understand your situation. When
your mortgage broker better understands you, you can get a
better refinance home loan.

About The Author: Visit http://www.refinancesmarts.com for
help in finding a good Home Mortgage Refinance Broker.

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Strategies To Lower Your Mortgage Payment

You have a couple of options to lower your mortgage payment
when refinancing. The first choice is to find a low rate
mortgage. So even if you choose the same length for your loan,
you will still see a savings in your monthly mortgage bill.
Adjustable rate and interest only loans will give you the
lowest payments, at least at the beginning of your home loan.
But a fixed rate loan can also give you reasonable rates with
security that they won=EDt rise in the future.

The other option is to extend your loan term, especially in the
case of your second mortgage which usually is for five to ten
years. By consolidating your loans to a thirty year loan, you
lengthen your payment schedule for principal, so you have a
smaller payment. However, your interest rate and charges will
be higher than with a shorter term.

Getting The Best Loan

Once you determine the type of loan and terms you want, do your
shopping for a good lender to save even more money. Lenders will
vary in how much they charge for closing costs and interest
rates. The APR will tell you how loans compare overall, both in
terms of rates and closing costs.

But if you are planning to move or refinance again in the
future, then be wary of paying high closing costs. Even if they
secure you a lower rate, you will only see a savings if you keep
the mortgage for several years.

Don=EDt base your lender decision based on posted loan rates. Ask
for a personalized loan quote based on your general information.
With more accurate numbers, you can make an informed choice as
to who has the best financing for you.

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Reverse mortgages have been found to be a reasonable solution
to many problems for many people. When there are funds required
for home improvement or funds for medical aid, etc, people find
that they get the funds required though reverse mortgages
without really paying for it. At times there are fees involved
that can actually reduce the amount that is paid to the house
owner and the amount is far smaller than the loan required.

One has to be at least 62 years old to qualify for a reverse
mortgage and generally there are no checks like credit or other
checks that are carried out. Mobile homes however, do not
qualify for a reverse mortgage. Homeowners can be single or a
couple and those who have some equity on their home will be
able to get this based on whether they own or not only. But if
money is owed through a lien or some other mortgage, then it
needs to be paid off using the reverse mortgage and if that
amount is insufficient, then your personal savings will have to
be used.

Another point to keep in mind is that if there is an ongoing
case for bankruptcy filed then getting the reverse mortgage
will be delayed till the case is over. This is because it needs
to be confirmed that the house is not part of any bankruptcy
claims and the owners will continue to be title holders of the
house.

An additional option is where the local or state government
actually helps fund the reverse mortgage and this becomes an
additional option. Most of these mortgages which are taken are
backed by the FHA. This provides that if the homeowner dies or
moves out of the house and the proceeds are not enough to cover
the cost of the reverse mortgage, then the FHA will ensure that
the balance funds are cleared by them.

Many lenders and governments give out reverse mortgages and if
you meet the criteria then you could benefit from it and make
your life a little more trouble free. That%rsquo;s the basic promise
that reverse mortgages give you – to make your life a little
bit easier when you need to pay money for something.

About The Author: Tom Atkins is a staff writer at
http://www.finance-journal.com and is an occasional contributor
to several other websites, including
http://www.debt-journal.com.

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