How to Speed Up Refinance Process

Tips to make the home loan refinancing process go faster and avoid delays.

If you are considering to refinance, taking quick steps to accomplish it may be important if you want to take advantage of the current financial situation. Here are a few ways if by which you can speed up your refinancing process.

Fill out the loan application properly

Fill out all the items in the application. Incomplete applications usually get neglected or delayed by the mortgage lender. If you do not know how to answer a particular question you can take the assistance of the loan officer rather than leaving a blank. Cross out any items that do not apply to you so that the lender knows that you have not overlooked or forgotten to fill them.

Attach all copies of required documentation.

Always include a copy of your latest pay stubs or give a copy of your two most recent tax returns in case you are self-employed. You should also always keep a complete copy of the entire application in case the original gets misplaced.

Make things easier for the appraiser.

In order to make the appraisals go faster you can get the complete floor plan of your house in case you have it. Provide copies of invoices for any improvements that you made the property since you bought it. This will help the appraiser reach a more accurate value of your home more easily and quickly. Since appraisal is just as important part of refinancing a mortgage as it is of purchasing one, this can help speed up the refinancing process.

Do not go chasing after multiple vendors

Putting into multiple refinance applications with multiple lenders can be a waste of time and money. Instead, use our earlier sections to how to narrow down your list of potential lenders and mortgage loan and target your effort in a focused manner. Decide on which mortgage lender you want to work with and pursue him to complete your refinancing process as quickly as possible. Also, if you happen to apply for a refinance during a busy time, waiting for results to come up with different mortgage lenders can take a long time.

Do not wait longer than necessary

Do not wait if you are ready to refinance now and you are already getting a good interest rate. Many people tend to get greedy and wait for the interest rate to go down a further notch or two. Interest rate can move in both directions. If you are already getting a good interest rate, waiting anymore could be a costly mistake.

2 Reasons To Refinance An ARM When Interest Rates Fall

Refinancing an ARM when the Cap Limit Is More Than Current Interest Rates

All good adjustable rate mortgage is come with a limit on the interest-rate. This is known as a Cap.

This is an interesting point of view which many people with adjustable-rate mortgages do not consider. Someone with a fixed-rate mortgage has no option but to refinance in order to take advantage of lower interest rate. People with adjustable-rate mortgages think that since there interest rate adjusts to the market rates anyway, they do not have to refinance when the interest rate for.

However, the one thing that borrows of adjustable rate mortgage is to not consider is that just like there is a limit on how much the interest rate can increase in a year, there is a similar limit on how much an ARM interest can decrease.

Let’s say that the interest rates decreased by 2%. You get notified by your lender that you’re monthly payment is going to come down to 1% since that is the maximum allowable limit that the interest rate on your adjustable rate mortgage can decrease in any given year.

This means that you cannot fully take advantage of the market rate and will have to wait for next year for the rate to decrease by another 1% but only if the low interest rates that are floating around today are still there.

You may console yourself by thinking that this is all right since your limit on the interest rate protects you both ways. If you cannot take full advantage of lower interest rate in the market, similarly you don’t get overly penalized by the interest rates go up either.

But imagine this scenario. Since interest rates have fallen, a new borrower can get the same adjustable rate mortgage as yours at 4.5% today. You, however, got your mortgage at 6.5%. This means that you will have to wait for two years before your interest rate can come down to the rate that is active today and that is also providing that the low interest rate continues to hold.

But if you were to refinance today at 4.5%, even if interest rates were to increase in the future and your rate would increase for 2% which is the worst-case scenario as allowed by the yearly limit on interest-rate increase, it would still be paying 6.5% which is what you’re paying today anyway.

Refinancing an ARM to Reduce Maximum Lifetime Interest Rate Cap

Another very interesting aspect to consider about refinancing an adjustable rate mortgage is that by refinancing to a lower interest rate today than what you originally got, you are bringing down the maximum ceiling on your ARM, adjustable rate mortgage.

All good adjustable rate mortgage come with a maximum ceiling on loans which is the maximum that the interest rate is allowed to increase throughout the life of the loan. This is in addition to the yearly limit which is how much the rate can increase in any given one year.

Let us consider an example where you took out your adjustable rate mortgage for 6.5% that comes with a maximum limit of 6%. This means that in the worst-case scenario, where the interest rate on your mortgage reaches its maximum, you could be a 12.5% on your mortgage loan.

However, if you were to refinance today to a lower interest rate of 4.5% of that same adjustable rate mortgage, you bring down the maximum interest rate to 10.5%.

Since the maximum limit on your adjustable rate mortgage is 6%, your adjustable rate mortgage is only allowed to increase up to that limit during its entire term which gives us 6% +4.5% that you qualify for today which equals to 10.5% as opposed to 12.5% of interest in the worst-case scenario. In this manner refinancing your adjustable rate mortgage can not only reduce the monthly payment but it can also cut down on the maximum risk that you face on the mortgage.

How Long Will It Take To Recover the Refinance Costs?

Calculate how long it takes to recover fee financing cost.

In order to calculate how long it will take you to recover the refinancing cost with your reduced monthly payment, the calculation is quite simple. You divide your refinancing cost with your after-tax monthly savings and that will give you the number of months in which he would break even. Using an example where it costs you $4000 to refinance and you save an after-tax $180 on your monthly mortgage payment, this simple calculation were $4000 divided by $180 gives you 22.2 months. This is how long it would take for you to recover those $4000 that you spend in your refinancing cost. After this whatever money is saved every month is pure savings. For example, in the next five years, which is 16 months you will recover $180 multiplied by 60 which equals two $10,800 minus the $4000 cost which gives you a saving of $6800.

Even in this example we have ignored state income taxes. Some states have significant income taxes and different rules regarding how this taxation is implemented. Be sure to factor in those lost tax savings into a refinance calculations as well.

12 Strong Reasons Why It Might Be Time To Refinance Your Mortgage

Reasons for refinancing a mortgage

There are many situations and reasons to refinance your current existing mortgage. Most of the people think that refinancing should only be done in order to reduce the interest rate on the mortgage and to cut down on the monthly mortgage payment. However, there are other situations as well which may need you to refinance your home loan. These are some of the common reasons why you can consider refinancing your mortgage.

To Reduce Payments

The primary reason why people refinance their mortgage is to take advantage of the lowering of interest rate in the mortgage market. By refinancing to a mortgage with a lower interest rate, you are able to reduce your monthly payment and save money. Refinancing to a lower interest rate can save you thousands of dollars over the entire term of the mortgage.

Refinancing For Lower Interest rate and to reduce monthly mortgage payments

Reducing  Lost savings for Tax Deductions to Calculate Actual Monthly Saving after Mortgage Refinance

How Long Will It Take To Recover Refinancing Costs From Monthly Savings

Should You Pay For Points When Refinancing?

To restructure your mortgage plan

Many people needs to refinance their mortgage even though there is no immediate monetary saving to be received from such a step. Such a situation usually arises when the borrower has a balloon mortgage coming to a close of its term when a large payment is due to the lender.

Refinancing this short-term balloon mortgage in order to avoid the balloon payment and refinancing it to a long-term loan can become an immediate priority of. In fact when many people take a second mortgage or use the 80 — 10 — 10 financing, they count on the fact of being able to refinance their mortgage when the time comes to make the impressively large balloon payment.

Another reason that people sometimes choose to refinance is to convert their adjustable rate mortgage into a fixed-rate mortgage. If the volatile conditions in the market is making you nervous and making you have sleepless nights worrying about for increase on the interest rate of your mortgage, you can choose to refinance to a fixed-rate mortgage for the peace of your mind.

Refinancing mortgage when you need to change the kind of mortgage you have

Refinance to Convert a Short Term Balloon Mortgage to A Long Term Mortgage

Refinance Mortgage To Convert an ARM to an FRM

When ARMs allow conversion to a fixed rate mortgage without the need to refinance

Refinance to Make Pay It Off Sooner

 

To Get Large Sum Of Money

Large expenditures such as a wedding, home improvements, college fees for your child etc may require an influx of a large sum of money. Many homeowners choose to refinance existing mortgage to take advantage of the built-in equity in the value of the home. If you have owned your property for some time, and the real estate market has been going well where the value of your property is more than what you purchased for, you can refinance your current mortgage in order to withdraw some of its built-in equity.

The longer you have owned your property for more equity it is likely to have built because of two reasons. If you have been making loan payments for a long time, the balance of the mortgage and hence your liability on the home has decreased. Number two, with the appreciation of the value of the real estate, the property of the house has increased. 

Refinancing for a Cash Out Mortgage

Refinancing for Improvements in the Credit Score

We have mentioned in the past that people who have taken a mortgage loan during the time that they had a bad credit rating may find that making regular payments on the mortgage has increased their credit rating. Other factors could also be responsible for your credit improving in the future. Having a bad credit rating might means that you will be able to qualify for a mortgage loan with a better interest rate and better terms and conditions.

Refinancing for Consolidating Debt

Refinancing a mortgage can also be used to consolidate unsecured and high interest debts such as credit cards. Since a mortgage loan has a lower rate of interest than credit card interest in most of the cases you will be able to pay off your high interest debt in one go and then have much smaller payments to make every month. 

The two important things to be considered in the scenario is that you are converting an unsecured debt into a secured debt which is backed up by your home. This can be a very risky thing to do. Secondly, you have to realize that even though your monthly payments may reduce you might be paying much more on interest over the entire term of the mortgage than you would if you just paid off your credit cards.

3 Questions Before Closing a Remortgage Deal

Three Basic Things You Should Know About Your Refinance Deal

Some very basic things that you should know about your refinance and ask your mortgage lender about before you sign on the dotted line.

What are the terms and conditions of the refinance contract?

You should fully understand the terms and conditions of the re-finance contract. This will help you gain full in sight on whether you are actually making a decision that is better than your current mortgage loan. There is no point in remortgaging if the new deal does not offer you substantial benefits. People have been known to make bad decisions when refinancing and landed themselves in a worse situation than before.

Learning more about you refinance contract will tell you if there are any kind of penalty fees associated with it if you decide to prepaid a home loan or resell before the home loan is over. If you are intending to stay in your house were short amount of time and foresee selling the house in the future credit is important that the mortgage lenders allows you to close the loan without charging you are heavy fees.

Is There a Promotional Interest Rate?

People have been known to sign on a refinancing deal thinking that the interest rates they are getting is a permanent interest rate whereas it stand out to be a promotional one that is only valid for the first few months of the first couple of years of the mortgage loan. Thing with promotional interest rates is that once the promotional period is over the interest rate can increase substantially and subsequently increase your monthly mortgage payments and making them unaffordable to the point where you risk facing foreclosure.

Is the Mortgage Lender Going to Resell the Loan?

In many situations a mortgage lender sells of the home loan to third-party soon after it has been approved. This means that he becomes only the service provider for the mortgage loan whereas a third-party owns it. This might make a difference in the future if you decide to refinance or need to modify the home loan. Because the current mortgage lender no longer owns the loan he will not be able to provide you with any direct services and will have to agree to the guidelines of the third-party corporation now owns your home loan. The result will be that you will have to deal with the entirely different entity through your mortgage lender in order to bring about any modification service changes in your home loan. If the mortgage lender offers some versus services, you might not be able to act upon them if he has sold the loan to third-party Corporation.

Problems with Applying for a Self-Employed Mortgage

Applying for self-employed mortgage can be problematic as you will find a lesser number of mortgage lenders willing to deal with the self employed people. In some cases it becomes a problem to verify a stable and regular income. In such a case the mortgage lender does not feel safe in giving out a mortgage loan. However, people who have a substantial income coming in from being self-employed will not find a problem in getting approved as long as they can establish a record of such payments over a substantial period of time in the past. If there is a history of getting events, even if the regular, mortgage lender will be able to get an average idea of the annual author monthly income of the self-employed person.

So what is important if you are a self-employed person and applying for a mortgage or a mortgage refinance loan is to be able to provide a verification of your income to the mortgage lender. Avoiding the lender with a statement of your bank account which receives your income will tell the mortgage lender if you receive a steady income from being self-employed or not.

Sometimes the problem does not lie in the amount you can but the inability or unwillingness of mortgage lenders to deal with self-employed people. The approval process can sometimes get stuck if they cannot verify your job or profession. This is especially true for people who pursue alternate areas such as being artists, writers etc.

Even so, you might have to try a little harder to find a mortgage lender who is willing to refinance your mortgage when you are a self-employed person.

Basic Steps for Remortgaging a Home Loan

When planning to remortgage a home loan this is the basic outline of how you should go about the process.

If you’re planning to remortgage it is a good idea to go about the process in a systematic step by step manner. In order to get the best remortgaging deal you need to consider several factors. By comparing the pros and cons of remortgaging in your situation you can come up with a carefully thought out solution to your remortgaging needs. Here are some of the basic steps involved in a remortgage.

Understanding Your Current Home Loan

Before you consider remortgaging your current home loan you should get to understand and know it properly. Certain features in your current mortgage may make the idea of refinancing non-lucrative. For example, most of the mortgage loan contracts have a clause that does not allow the borrower to refinance his mortgage before a certain period of time without having to pay heavy penalty fees. Even if there are no penalty fees there might be a prepayment charge for closing down a mortgage before the completion of the entire term. These charges and additional costs can sometimes be a deterrent to refinancing your mortgage, especially within the time period when the prepayment penalty fees are liable.

Shopping for a mortgage loan Refinancing Offers

In order to make refinancing your mortgage a reality you have to be aware of the offers that are available in the market. For example, it is usually advised to refinance home loan only if there is a difference of more than 2% between the new and your current mortgage home loan. Because refinancing a mortgage is like taking out a new mortgage loan you will have to take on additional costs such as processing fee, application fee and closing costs. Depending upon how beneficial a deal can get from a lender when you refinance and how much money you can save every month you will have to decide whether paying the additional closing costs is worth it or not. You also need to discover whether you can qualify for the offers that are available for refinancing from various mortgage lenders. There might be an offer to refinance your mortgage at a much lower interest rate but it may be only valid for people with a higher credit score than yours.
You need to get good faith estimates from the various lenders that you are shopping a mortgage loan from in order to get an idea of the complete costs involved in refinancing your mortgage. You cannot make a decision to work with a particular lender till you have got the entire picture of the costs involved.
Getting an idea of the offers are available with other mortgage lenders will also give you a leveraged to get a better deal out of your current mortgage lender in case he is not matching the offers which are available from other refinancing mortgage lenders.

Choosing Terms and Conditions of the Loan

Getting the lowest interest rate on a mortgage loan is not the only criteria for choosing a mortgage lender when you refinance. You may be trying to accomplish other purposes to refinancing as well such as getting extra income, paying off the mortgage faster etc. Based on all these features decide what kind of a loan you want to replace your current mortgage. For example, do you want a 20 year fixed rate mortgage for a 30 year fixed rate mortgage?

Close the Current Mortgage and Start Payments on the New Mortgage

After you have decided which mortgage lender to work with and found the right refinancing offer, you need to go through the complete process of refinancing which is similar to the process you went through when you took your first mortgage loan. There will be approval process, credit check and maybe even a property appraisal process. When the refinanced mortgage comes through you will have to close down your current mortgage by paying it off in full and start making payments on your new mortgage according to the new terms and conditions decided with your refinanced mortgage lender.

Pros And Cons Of Refinancing With Your Current Lender

Refinancing your mortgage with your current mortgage lender both has its advantages and its disadvantages. First let us consider the advantages.

Advantages Of Refinancing With Your Current Lender

Avoid Extra Paperwork

Many people feel comfortable working with their existing lender. Since the current lender already has most of the paperwork and information concerning the client, borrowers are able to avoid a lot of paperwork which would be inevitable if they were refinancing with a new lender.

Expectations Of Favourable Treatment

Several borrowers also feel that owing to an established relationship with the lender they will receive special treatment and special offers. The current mortgage lender might not only be able to make the process easier and convenient but also be able to shave off some essential costs of refinancing the loan.

Shave Off Costs Of Refinancing

You current lender can shave off the costs of the loan like a credit history check, application fee, processing fee, property appraisal, title search only if he still owns the loan. In most cases mortgage lenders immediately sell the home loan to a third-party. However, this is still up to his discretion.

However, if the mortgage lender is now only the servicing the home loan and the home loan has been sold to a third-party then the cost cutting powers of the lender are limited and he has to adhere to the guidelines of the parent loan company.

Nevertheless, the while process can still definitely be made quicker and easier for you.

On the flip side there are some reasons why you might want to look elsewhere to refinance. If you experience any of the following with your current mortgage lender, consider other options as well.

Disadvantages Of Refinancing With Your Current Lender

Refinance Terms Not Competitive 

It’s obvious that you would prefer to refinance with the current lender because the process is probably going to be easier. The problem is that your lender is aware of this fact and might try to take advantage of it. He might make you an offer that is enticing enough to keep your business but not AS good as what you could find if you looked elsewhere.

The number one rule of refinancing, or getting any kind of credit for that matter, is to shop around. That’s the most effective way of finding the best deal. Even if you want to work with your current lender, find out whats the best you are getting from other lenders and use that as information leverage to get a better deal.

Delay In Processing

Simply put, your current mortgage lender might be in no hurry to refinance your current mortgage loan which is running at a 7 ½% interest rate to a 6% interest rate. If you are getting put off for too long for no good reason, consider looking elsewhere for your new loan.

FAQ for Mortgage Refinancing

When should you refinance a home-loan?

The timing of remortgaging a home loan determines how much you can get from such a venture. Usually it is advised that you should go for a difference of at least 2% between your current mortgage and the new mortgage before you decide to refinance. However, many people see the benefit of refinancing even when the difference in the interest rate is as less as 1%. What you need to consider is how the difference in the monthly payment will benefit you. The larger the some of the loan the more will be difference for even a small difference in the interest rate. On a mortgage of $100,000 for the interest rate of 8 ½% difference in the monthly payment by the reduction of 1% would be about $70 a month. You need to decide how much of the benefit this is given the fact that you will need to bear the closing costs of the new mortgage on which might take a few years to recover through the lowered monthly payments.

Should You Refinance If You’re Planning to Move Soon?

Usually refinancing mortgage is advised when you are going to stay in your home long enough to be able to take full advantage of a lowered monthly payments on your home loan. Every time that you refinance the mortgage you will have to pay the processing fee, application fee, originating costs and closing costs. These costs will require you to put in a lump sum of money as down payment on the mortgage or the mortgage lender will offer to roll these costs in to the principle balance of the new mortgage. The result is that either it will take you a few years to recover closing costs or your monthly payments will increase due to the additional amount of closing costs being added to the home loan. Some mortgage lenders may forgive you the closing costs but charge you a higher rate of interest. For example if it costs your $2000 to refinance your home loan and saves you $60 per month it will take you about 3 ½ years to recover these closing costs. Only after this duration you actually start to benefit from having refinanced.

Should you buy discount points for refinancing?

Answer to this question is pretty much the same as above. You can reduce the interest rate on your mortgage and subsequently lower the payments on your home loan every month by purchasing points during the time of refinance. But the fact of the matter is that you’ll have to make a payment of 1% of the mortgage loan for every single point that you purchased. If you are not intending to stay in the home for a very long time you may find that you are not able to recover the cost of purchasing points through the lower payments on your home loan.

What Is a Lock-In Period in a Mortgage Loans Interest Rate?

If the economy is in a volatile state and the interest rates fluctuating rapidly and unpredictably, you may find that the interest rate on your mortgage loan differs from the day that you applied to the day that you actually finished the process of refinancing. And the lock in period is a service that is provided by the mortgage lender in which he assures you of the same interest rate on your mortgage loan contract as the one that you agreed upon during the time of your application. This lock in period guarantees that you get the same interest rate that you agreed upon regardless of what changes have taken in the economic conditions. This period within which the interest rate is locked in at the lender typically ranges from 30 to 60 days. The mortgage lender may or may not charge a special fee for the service and may or may not also offer floated on provision which will allow the borrower to take advantage of a lower interest rate in case they happened to drop during this duration.

Should you lock in the interest rate when applying for a mortgage?

If the economy is in a state where the interest rate is fluctuating then it may be prudent to lock in the interest rate with the mortgage lender. No one can predict the changes that might occur in the interest rate between the times that you apply for a mortgage and the moment that you close the deal. This is more true for the refinancing process since it can take a longer period of time than a typical mortgage deal. The mortgage lender will be able to inform you about the trend in the market rates and if they are expected to fluctuate in the near future. In order to guard yourself against the volatile conditions of the economy and the interest rate you might deem it preferable to block in your interest rate with a mortgage lender. You will have to weigh this option with the service fee that the mortgage lender charges for the service if any. If the mortgage lender provides this service without initial charges you should almost always lock in the interest rate with the lender provided he also gives you the option of a ‘float down’. A provision for a ‘float down’ means that you will also be able to take advantage of a lower rate of interest if they happen to decrease in stead of increasing on the day that you close the deal.

What Is the Impact of blemishes on credit report on Getting a Home Loan?

It is difficult but not impossible to get a home loan if you have blemishes on your credit history. A good credit score and a good payment history is very important to qualify for good terms and conditions on a mortgage loan. Most of the mortgage lenders look to deal with consumers who have a record of being a good lending risk. The mortgage lenders who deal people who have a bad credit history will have a few other requirements. When you are trying to get a home loan on a bad credit history you will find that you may be required to make a larger down payment, except a higher interest rate on your home loan, provide valid proof of a stable income and job and even purchase points to lower the interest rate on your home loan. It is also advised when you’re shopping for a mortgage loan on a bad credit to take the help of a mortgage broker. Mortgage brokers are well versed with the trends and the offers that are prevalent in the loan industry. They work with many home loan lenders simultaneously and hence will be in a place to quickly match you with the right offer according to your credit situation.

How to Determine Which Mortgage Lending Offer Is the Best?

In order to determine which lender is offering you the best deal you not only need to consider other financial profitability of the deal but also consider the reputation of the mortgage lender as well as the services he is ready to provide you in the future. In order to gain a complete overview of the deal that you getting with a mortgage lender you need to ask them for a good faith estimate. But even before you do so you should ask the mortgage lender questions about closing costs, the ability to refinance in the future etc. All the genuine and legitimate mortgage lenders will be able to provide you with satisfactory answers to your questions and be also willing to give you a good faith estimate which requires them to include all costs of refinancing your mortgage. After getting the necessary information decide on the basis of which mortgage lender you feel the most comfortable working with. Do not decide merely on the basis of interest rate as it may be in your best interest to actually work with a mortgage lender who is reputable even though he is charging a marginally higher rate of interest.

Income Taxes Applicable On Refinancing A Home Loan

Usually there are no income tax repercussions of refinancing a mortgage. When you take out a cash out refinance on a mortgage you generate extra income. But since you are going to have to pay back you may not think of it as pure income. The IRS knows this and hence makes the money that you get during a cash out refinance as non-taxable. However, it is advisable to declare your refinance and its details during income tax filing so as to avoid any further contradictions and complications.

Forgiven Debt Is Taxable

Usually in the case of a cash out refinance you take out a new mortgage for an amount which is greater than the balance on your current mortgage and use the new loan to pay off your current lender. You get to keep the money that is left over after paying off the balance in full on your current mortgage.

However, if in certain cases you have settled with your current lender for an amount which is less than what you actually owe him on a mortgage then the IRS will consider this money that you saved as an income. For example if the remaining balance on your existing mortgage was $150,000 and you took out a cash out refinance for $180,000 you get to keep the additional $30,000 as non-taxable income after you have paid your existing lender is complete balance.

However, if you happen to settle with your current lender for an amount of $130,000 instead of $150,000, you have been forgiven a debt of $20,000 by your mortgage lender. This forgiven debt will be treated as a taxable income by the Internal Revenue Service.

Taxes Liable on Unpaid Debt

A situation like this can arise in certain cases of foreclosure of home loans. When a borrower is unable to pay off the mortgage the mortgage lender usually forecloses the loan and sells the house to recover the money that he lent.

In many cases the sale of the house does not result generate enough money to cover the losses of the mortgage lender. If a mortgage lender is not able to fully recover his loan from the sale of the house he can pursue the borrower to recover the remaining amount.

However, if the mortgage lender gives the borrower this amount then the IRS will consider this a given amount of debt to be an income and hence taxable.