Why Refinance Back into a 30-Year Loan?
One of the biggest reasons homeowners refinance their mortgage is to obtain a lower interest rate and lower monthly payments. By refinancing, the borrower pays off their existing mortgage and replaces it with a new one. This can often be accomplished with a no-points no-fees loan program, which essentially means at "no cost" to the borrower.
In the no-points no-fees scenario, the mortgage consultant uses rebate monies paid by the lender to pay off non-recurring closing costs for the borrower. These are "one time" fees such as escrow or attorney fees, title insurance, document preparation, tax service, flood certification, processing and underwriting fees, etc. The borrower is still responsible for recurring fees such as interim insurance, property taxes or insurance policy payments.
Refinancing typically occurs when mortgage interest rates drop significantly, but borrowers with recently improved credit scores (from paying off credit card debt, making mortgage payments on time, etc.) are often candidates for better interest rates as well. If you haven't checked your credit score in a while, it's a good time to call a mortgage consultant.
The question most asked is, "But why should I go back into a 30-year loan?"
There are two schools of thought on this subject, and the mortgage consultant should work hand-in-hand with the borrower's financial planner to determine what works best for their mutual client.
One option is to take the route of the "same payment" refinance, and actually pay off the loan faster and save money on interest fees in the long-run. If refinancing results in a lower monthly payment, the borrower can still continue making the same payment they made in the original loan, and the extra money will be applied to the principal balance.
For example: Let's say you have 25 years remaining in your current loan, and you refinance back to a 30-year loan with a slightly lower interest rate, resulting in a payment reduction of $200 per month. (Note: This is just an example. The actual amount could vary.) You could then take that extra $200 per month and apply it toward the principal on the new loan. At this rate, the loan will be paid off in 22 years and 4 months, which is 2 years and 8 months less than the original loan.
On the other hand, if the borrower's financial planner is a proponent of best-selling author and investment guru Douglas Andrew's philosophies (see Missed Fortune), he or she may suggest investing the extra money in a side-fund that could earn a better rate of return and grow to the amount of the mortgage (and beyond) in even less time. This method provides excellent liquidity, but having more direct access to this money may be too tempting for some homeowners.
Regardless of the reason for the refinance, the mortgage consultant will need to know what the existing loan scenario entails, review the homeowner's long-term goals, and provide a comprehensive spreadsheet that compares and contrasts the various loan programs available. Bear in mind, refinancing to obtain a lower interest payment could also result in a lower deduction at tax time. The homeowner's mortgage consultant and financial planner should work hand-in-hand with their mutual client's best interest in mind.
Mical Johnson is affiliate with Rock Financial. For a free copy of The Certified Guide to Credit Scoring contact Mr. Johnson at http://www.TampaMortgageGuy.com
Latest News
When refinancing mortgage makes sense Chicago Tribune, United States - But you don't have to be in financial trouble to benefit from mortgage refinance, real estate experts say. "At this point, there are thousands of good ... |
 Boston Globe (registration) | Center for Responsible Lending and Industry Groups Urge HUD to ... MarketWatch - ... to help the largest possible numbers of at-risk borrowers. This is not the appropriate time to permit the lapse of a viable mortgage refinance option. HUD Said to Entice Banks to Enter Foreclosure Program (Update1) Major Revamp Of Two HUD Mortgage Relief Programs To Be Pushed Tips On Saving Your Home From Foreclosure |
 The Money Times | Mortgage Applications Fall VillageSoup Belfast, USA - Mortgage rates were down slightly, so most of the decrease was in mortgages to purchase homes. The refinance index increased 2.6 percent, while the purchase ... HOUSING: Mortgage applications among buyers dip US MBA’s Mortgage Applications Index Decreased 6.2% Last Week Mortgage Applications Down 6.2 Percent; Near 8-Year Low |
Should you refinance your mortgage? Vail Daily News, CO - Many homeowners are finding it increasingly difficult to afford the mortgage payments on the loans they have taken out in the last several years. ... |
 Reuters | Nehemiah Applauds FDIC Chair Sheila Bair for Calling Attention to ... MarketWatch - Further, distressed families could easily refinance out of risky adjustable rate mortgages into low-interest, fixed FHA mortgages using DPA. ... Should Obama name FDIC's Bair as a Special Advisor for Mortgage ... FDIC Revises Proposal to Refinance Troubled Loans New Year US Housing Market Forecast: No Gain, More Pain |
Now Available Again: Stated Income - Verified Assets (SIVA) Real ... PR Web (press release), WA - As a full-service residential mortgage lender, Katz Mortgage Team specializes in residential mortgages, mortgage refinancing, adjustable rate mortgages ... |
Foreclosure mediation, relief for the 'little guy' Minneapolis Star Tribune, MN - ... on their 2006 mortgage adjusted up from 6.53 percent to 10.35 percent. That raised their monthly payments from $1800 to $2600. They couldn't refinance, ... |
Rell announces: homeowners reducing monthly payments TownTimesNews.com, CT - ... November 13, announced that Connecticut homeowners using the refinancing program she created last December in response to the subprime mortgage crisis ... |
Refinancing Borrowers Choose Safety of Fixed-Rate Mortgages DSNews.com, TX - ... prime borrowers who originally had a 1-year conforming adjustable-rate mortgage (ARM) chose a new conforming fixed-rate mortgage when they refinanced. ... |
Capmark Finance Originates $23425000 for Refinance of Autumn Chase ... PR Web (press release), WA - Capmark has three core businesses: lending and mortgage banking, investments and funds management, and loan servicing. Capmark operates in North America, ... |
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