Mortgage Refinancing is way to replace the existing mortgage with another mortgage. The replacement can happen with the current mortgage lender or a different mortgage lender. Mortgage Lenders created numerous mortgage options which add to the complexities of mortgage. Here are a collection of common questions and answers about mortgage refinancing.
What are the steps to mortgage refinancing?
First, you analyze your current financial situation. This tells how well your financial situation. After, you shop for the best mortgage. Most mortgage lenders have a website. Borrowers can research on the internet. Once the borrower found an advantageous mortgage, the borrower applies for the mortgage refinancing.
How to choose the right mortgage lender, or mortgage broker for mortgage refinancing?
The mortgage lenders differ in mortgage options such as interest rates, mortgage terms, down payment, closing costs, and more. To choose the right mortgage lender requires many mortgage refinance calculations and considerations.
What do I need to complete mortgage refinancing application?
Borrowers need to supply the full names, current addresses, previous addresses, social security numbers, employers information, gross monthly income, property information, asset information, and liabilities information.
When should you do mortgage refinancing?
The life of the mortgage is divided into several mortgage terms. When the mortgage matures at the end mortgage term, the borrower refinances the mortgage. This process is repeated until the mortgage is completely paid out.
The borrower does not necessarily have to wait for the maturity date of the mortgage. Sometimes, the mortgage lender offers a mortgage that is too good to pass. When mortgage lender offers a very good mortgage, the borrower can refinance the mortgage.
If the new mortgage can reduce the life of the mortgage, and reduce the mortgage payment on pay period, it is advantageous for the borrower to refinance the mortgage.
What are the costs involve in mortgage refinancing?
The borrower may have to pay the penalty to refinance a mortgage before the mortgage reaches the end of the mortgage term. Since the mortgage lender loses the interest to be paid to them, the mortgage lender charges penalty. However, a low interest rate on the new mortgage may offset the penalty.
The borrower can pay for the discount points as well. It is the amount to bring down the monthly mortgage payment, or any mortgage payment. Each discount points means one percent.
The borrower also pays the application fee, title search fee, and appraisal fee every mortgage refinancing. Mortgage lender charges a fee to process the mortgage application called application fee. Mortgage lender also needs who the real owner of the property. Hence, the borrower pays the title search fee. Lastly, the appraisal fee tells the fair market value. The mortgage lender needs to find out if the value of the property can pay off the mortgage in case of default on mortgage payment.
Mortgage Refinancing refers to switch from one mortgage to another to obtain substantial benefits. We are surrounded with huge number of mortgage lenders. Each mortgage lender promotes special mortgage options on a regular basis. To be able to know which works best for you, you need to understand how Mortgage Refinancing works.
The main reason to switch a mortgage is to lower the monthly mortgage payments. Mortgage Lenders offer special low interest rate, when you switch or transfer your mortgage to them. The market also determines the interest rate. When the interest rate goes low, it may be a good chance to switch to a better mortgage.
The life of the mortgage is divided into a number of terms. For example, 1, 2, 3, 4, 5 year term are common. When the term of the mortgage matures, the borrower seeks Mortgage Refinancing. The borrower has no choice to refinance the mortgage in this situation.
The borrower can even switch from monthly mortgage payments to biweekly mortgage payments. There are more pay periods on bi weekly mortgage payment than monthly mortgage payment. The borrower pays off the principal twice faster with bi weekly mortgage payment. By the way, the principal is the total amount of mortgage.
The borrower can also switch from fixed mortgage rate to adjustable mortgage rate, or vice versa. Using the fixed mortgage rate, the borrower enjoys the stability of the same mortgage payment on each pay period. For example, the interest rate is low more than usual. To take advantage, the borrower refinances the mortgage with a low interest rate, and locks the mortgage with long mortgage term. The borrower pays less mortgage payment even though the interest rate goes up over the life of mortgage term.
Using the adjustable mortgage rate, the borrower pays a lower than prime interest rate. However, the interest rate goes up or down. The borrower experiences negative amortization when the mortgage payment is not enough to pay off the interest. At this point, the borrower loses equity. To combat negative amortization, the borrower pays higher mortgage payment on the rise of the interest rate.
To reduce the principal and increase the equity, the borrower can elect to pay additional on top of the current mortgage payment. So, the principal gets paid even sooner. At the same time, the borrower pays off the mortgage earlier.
The borrower pays the application fee, title search fee, and appraisal fee on mortgage refinancing. The application fee is the cost of processing the mortgage application. And, the title search fee makes sure that mortgage applicant is really the owner of the property. Finally, the appraisal fee tells the fair market value of the property.
Mortgage Lenders give the borrower many mortgage options. With the proper use of mortgage options, the mortgage options reduce the interest over time, increase the equity, and decrease the mortgage payment. Always, be on the lookout for a better mortgage. There may be a better mortgage that you can take advantage.
The credit score measures the financial credit worthiness of a borrower. With credit score information, the lender assesses the risk involve in lending sum of money to the borrower. The Credit Bureaus and Fair Isaac Corporation closely guards the mathematical calculations. The calculations involve the analysis of large financial data. And, the public may not know how the Credit Bureaus and Fair Isaac Corporation arrive to the score. Anyways, the calculations are too difficult for the public to understand.
The lender will know how much loans, down payment, fees, interest rates, and terms to offer to the borrower thru credit scores. The borrower receives better interest rates and lesser fees with a higher the credit score.
Credit Score of Fair Isaac Corporation
Fair Isaac Corporation is also known as FICO. FICO provides the best known indicator of financial credit worthiness to lending institutions. The FICO credit score ranges from 300 to 850. A credit score of 660 puts the borrower as potentially Subprime where are borrower with blemished and limited credit history. A higher credit score indicates better financial credit worthiness.
Most borrowers average from 600 to 800 credit score. Lending institution favors above 720 of credit score. In the United States, the borrower averages 680 of credit score.
The credit score represents 35% punctuality of payments, 30% amount of credit used, 15% length of credit history, 10% types of credit used, and 10% the frequency of credit application.
Credit Score of Credit Bureau
In the United States, the three main credit bureaus are Equifax, Experian, and TransUnion. The Equifax, Experian, and TransUnion can provide credit report to any individual once a year. The credit report shows the financial history of an individual.
The credit bureaus created their own credit score. The credit score ranges between 0 to 100%. The higher scores look better for lenders. Usually, the scores fall between 60 to 70%.
The final thoughts
The credit score does not include the age, race, job, income, education, religion, origin, and marital status into the equation. The Equal Credit Opportunity Act prohibits the use of age, race, job, income, education, religion, origin, and marital status to determine the financial credit worthiness.
The late payments on loans, absence of credit preferences, lack of credit history, and uncontrollable use of credit cards brings the credit score down. Without a credit history, the lenders would not know how the borrower handles their finances.
Mortgage Fraud is any procedures to acquire mortgage with false information. The objective of this article is to detect a mortgage fraud at early stage for prevention. Mortgage Fraud increased gradually recently. It is believe to be around in trillion dollars per year in US and Canada.
Most of us dreams to own a house or home. In the process, we sometimes go over board. The fraudster misrepresents information like employment, status, tax, and other obligation just to obtain a house or home. Some fraudster misrepresents for profit too.
A quick flip an ownership is an obvious signs of fraud. For example, the fraudster buys a house. The fraudster gets a house appraisal with an inflated house price. A straw man who is unconnected to the fraudster purchases the house at an inflated house price. So, the fraudster earns a huge profit. Usually, the fraudster finds a straw man and promises easy money. Often, the straw man is a victim. In the meantime, the fraudster may or defaults on monthly mortgage payment. In case of default, the mortgage lender forecloses the house. Even though the fraudster loses the house, the fraudster earns a profit from the sale of house to the straw man.
Now, mortgage lenders keep a close eye on any property that is sold within ninety days of ownership. This is to combat the last example. Furthermore, some mortgage lender disapproves any purchase within ninety days of ownership.
Common Mortgage Fraud
- inflate appraisal value of property to sell at higher price
- bogus home upgrades or renovations
- misrepresentation of information on mortgage application
- use fake documents and identification
- unpaid mortgage, insurance, property tax, and home owner association in behalf of new owner
- flip property ownership to straw man
- fake down payment by the borrower
Mortgage Fraud Prevention Tips
Match the signature to the first and last name of the borrower if you can make out the first and last name from the signatures. If the signature does not match the first and last name, you can raise the fraud alarm.
We often forget that the telephone can be handy. The phone directory verifies the identity of the borrower at times. Also, you can verify the employment and identification by telephone.
With the advancement of technology, the fake documents are often hard to distinguish. A simple way to detect fake bank statement is to match the balance on previous statement to the next statement. Also, you can match the paycheck amount with the bank deposit amount.
There is fraud detection software available in the market. The software validates the information on the form. And, the software detects any inconsistencies at the early stage of the mortgage application. Today, the softwares are highly sophisticated and surprisingly user-friendly.
Mortgage Fraud evolves as we strengthen our mortgage fraud prevention tools. In the future, a new nature of mortgage can rise at any time. We must feel free to question unusual and suspicious activities. As a borrower, you may want to use a reputable business entity. At least, you must investigate the history of the business entity before you do any financial transaction. It may be more costly, but it gives you peace of mind. Or, you could end to lose your house.
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