Month: November 2018

What is the impact of refinancing on your credit score?

Are you thinking of refinancing a mortgage or any other loan? This is a strategy that a lot of people use to save money. Refinancing mortgages can help you spend less on monthly payments compared to your initial loan. Sometimes, it minimizes the amount of interest you have to pay to the lender. Though the benefits are many, not many people think about the effect on their credit scores.

During refinancing, it is possible to notice a slight change in your credit scores. When you apply for a loan, it affects your credit score. Refinancing can boost your financial situation, but it is not the best in all conditions. It may make your scores to go down temporarily. Good credit is important because you can enjoy a lot of benefits from it. It allows you to get better loan opportunities from financial institutions.

Good credit can also help you settle the costs of insurance as well as renting bills. You can also qualify for a job thanks to having good credit. That is why you should avoid things that affect your score. When you are contemplating applying for a big loan, you should avoid refinancing. Lowering your credit score from refinancing can make the lender deny you the loan.

You may also end up getting high-interest rates that are strenuous to settle. It is not wise to refinance an auto loan and get high-interest rates on your home loan. Be patient until the lender approves your big loan before refinancing the less crucial one. Some people also consider refinancing multiple loans. In this case, you should begin with the loan that gives you a lot of benefits then let the rest to follow.

Sometimes refinancing is not wise because you may find yourself in a worse financial situation than before. Though you can get low-interest rates from it, it can extend the loan terms. You may end up paying the loan longer than the initial loan. For instance, a loan that could have lasted for 15 years can extend up to 30 years.  You may start by paying interest at the beginning of your loan. Switching loans make you pay more interest costs at the end of the term without your knowledge.

You can avoid such scenarios by running the numbers to ensure that it makes sense before considering refinancing. Some people end up refinancing on a loan that is not very friendly. For instance, refinancing to a private student loan from a federal student loan can deter you from enjoying the benefits of federal student loans. These are more flexible in repayments and allow you to pause repaying in conditions such as unemployment. Private students’ loans are not as accommodating as federal loans.

In other cases, refinancing exposes you to high risk if you default to make repayments on time. It can turn into a recourse debt and put you in serious problems. It is therefore essential to evaluate the effects of refinancing when it comes to your credit score and risks before considering it.


Categories: Refinance-Mortgage

How should you handle a mortgage during retirement?

We all look forward to retiring one day. This can be a trying moment especially if you are still paying your mortgage. Most retirees look for ways to increase cash flow and reduce the expenses. That is why they consider refinancing mortgages. Though this can help, you should approach it with care and think about how it will affect your retirement before you make your final decision.

Refinancing a mortgage comes with many benefits. You could get low-interest rates to settle your loan. This can make it easy for you to make monthly payments when you are getting out of employment and into retirement. It can reduce the burden of housing costs on your budget. It allows you to pay your loan more quickly so that you don’t have to spend a lot of your retirement years in mortgage debt.

You should also consider refinancing if you have equity in your home. You can tap your equity and get cash out from refinancing as you lower your mortgage rate. During retirement, it is important to reduce your monthly housing costs. Refinancing your mortgage at lower rates can lower the payments and increase your cash flow every month.

Age comes with health complications, and the money can help you settle health care costs. A lot of retired couples need a lot of money for their health care expenses. You may also incur long-term care costs. Refinancing your mortgage can give you enough cash to serve such needs. It may also help you with day to day expenses. You may also be able to make repairs in your home so that you can increase the value of the property if you are thinking of selling it one day.

As you think of refinancing, come up with a budget to determine how you are going to use extra money you get from it. You can also use some to support your children. If you make it a long-term loan, you may get instant financial relief due to low payments. You, however, have to ensure that you have enough savings and a source of income from somewhere else. For instance, if you have social security, it might help you with expenses and allow you to make the payments for the years ahead.

When refinancing into a short loan, you must also have enough savings to sustain high payments. Think about the years remaining to settle the mortgage to determine if refinancing is the best option. Do you plan to pass your home to the children after your demise? In this case, the estate should have sufficient assets to settle any balance on the mortgage.

Refinancing goals also differ among individuals. You should identify your goal and stick to it. The refinance also comes with some additional costs when it comes to the closing fees. Determine if it wise to settle this fee from your pocket or roll it into your loan. The closing costs may have an impact on your monthly payments. Understanding all the issues and looking at refinancing from a broad perspective can help you determine if it’s the right thing to do during retirement.

Categories: Refinance-Mortgage

How does recasting a mortgage differ from refinancing?

There are numerous options in which people save money when they have a mortgage. While some people choose refinancing mortgages, others opt for recasting. Both of these options can give you savings due to low monthly payments as well as reduced interest costs. The two are, however, not the same since each method has its own merits and demerits.

Most people who choose to recast mortgages have no issues with cash flow. Their main aim could be to reduce the interest charges. Prepaying a significant amount of money to change the existing loan is what is called recasting. You can make a huge payment or add some extra money on your mortgage payments. This strategy puts you ahead of the debt repayment schedule.

During recasting, the lender can recalculate the monthly payments you make based on the low loan balance. This allows you to pay a lower monthly fee than what you have you been paying. A small loan balance reduces the interest over time.

Refinancing, on the other hand, occurs when you decide to apply to settle your loan by applying for a new one. The new one replaces the existing mortgage and allows you to work with a new lender. The loan that you get from refinancing is supposed to be smaller than the original amount you borrowed for you to enjoy low monthly payments. You should only refinance if you are confident of getting low-interest rates.

Though both of these techniques can be beneficial, recasting is simpler than refinancing. Recasting programs are simple compared to the process of getting a new loan. When recasting, your lender can charge you a small fee for this service. This is easy to recoup within a few months of a boost in your cash flow.

You may also get approved easily for a recast compared to applying for a new loan. Sometimes, some lenders reject approval for a refinance loan. Recasting is easy since you only request for the re-calculation of your amortization schedule. Unlike in refinancing, the lender may not ask for proof of income or other documents that confirm your assets.

In refinancing the interest rate changes but this is not the case during recasting. The lender only alters the balance of your loan during recasting. Some people confuse recasting with a loan modification, but these two terms are not similar.

Refinancing comes with new features such as low monthly payments and interest rates. A new loan may cost you more than a recast since it comes with closing costs such as origination fees and appraisal fees. Stretching the loan over a long period can also increase the interest you pay at the end of the period. Make use of a loan amortization calculator to check how much interest you may pay in the long run.

Both options may be beneficial, but they are not the best way for you to save money. Get a lump-sum amount to prepay your mortgage as you continue making large payments so that you don’t have to choose these alternatives. This not only saves you interest but it also makes it easy for you pay off the mortgage soon.

Categories: Refinance-Mortgage

Here is how you can make use of programs to refinance your mortgage

Are you considering refinancing your home? This may not be possible without the use of a program. HARP helps a lot of people when refinancing mortgages. This allows you to refinance at low rates so that you save some cash on housing and have enough cash flow for your expenses.

The program can allow you to move to a short-term loan without affecting your monthly payments. It gives you the chance of transferring your loan from an adjustable rate mortgage to a fixed rate type. Refinancing using HARP program allows you to make low payments so that you can pay the mortgage within a few years without incurring high interest.

Refinancing on your own makes you incur closing costs such as appraisal fees. Doing it using the program is more beneficial since you end up paying minimal closing costs as the appraisal is waived. Refinancing under HARP does not also add private mortgage insurance if you did not have it before. It also gives you the chance to remove the name of a person in the loan, for instance, an ex-spouse.

The program also does not consider factors such as bad credit when you need to refinance a loan. It can, therefore, save you from a financial situation when your credit history is poor. You can even refinance a second home or investment properties using the program.

The rates and fees of refinancing with HARP are also lower than refinancing on your own. You can easily document your assets and income thus increasing your chances of getting approval for the loan. Refinancing on your own can be cumbersome since you have to follow the procedure of applying for a loan. The home affordable refinance program makes things easier for you and saves time.

Due to the assurance of low rates, it increases the likelihood of repaying the loan and reduces the risk of default. Being stuck in a home makes a lot of homeowners default on their loans as some think of filing for bankruptcy. With the minimal risk of default, you would not consider such options.

Remember that when you are refinancing with the program, you still have to settle some of the closing costs. You can decide to roll some of the costs into the loan so that you don’t have to pay them from your pocket. These costs may form part of the interest which you will be required to pay together with the repayments. HARP ensures that the rates remain low to avoid overburdening you.

For you to save money from refinancing using the program, you should run the numbers to assess that this is the best option for your situation. For you to use the program, feel free to consult a mortgage lender who handles such applications. Though the program comes with unique rules, various lenders may have some different rules. Approaching financial planners and different lenders can help you get the right one to help you refinance with the program.

Categories: Refinance-Mortgage

Find out what you should do when your mortgage is sold

Are you preparing to buy your home? It is a good investment that comes with a lot of work. It involves comparing mortgage rates, saving enough to cater for closing costs as you determine how much money you need for the entire process. You have to research different mortgage companies and choose the best one that comes with favourable terms. The company should also have a strong financial background and offer low-interest rates.

After going through all these processes, you may realize that the name of the lender is not the same as the company you selected. Though this can be scary and disappointing due to the research you had to go through, selling mortgages happens all the time. Not many borrowers know this fact that is why you should understand the parts of a mortgage.

During the application process, mortgages involve three aspects. There is the loan originator, the servicing company and the lending company. When you apply for the loan, you deal with the loan originator directly. This is the person in charge of handling the paperwork on guiding you on the application process.

Once they have played their role, they send your application forms to the lending company. The company processes the application and approves your loan if you meet their requirements. The lending company can act as the loan servicing company, or they can sell it to a different company. As you make monthly payments for the mortgage, you will be required to address your check in the name of the servicing company.

The three different parties involved in the mortgage are all paid differently. For instance, the loan originator gets a commission for every mortgage they place. The lending and servicing company, however, get back their money over a long time.

Lending companies do not service the individual loans they fund to avoid getting broke. Instead, they bundle the loans together and sell them to government agencies which act as investors. The lending company, therefore, receives more money to lend another buyer from selling off the loan. It is a legal process that does not need your consent.

They should, however, inform you that another company will service your mortgage. Both loan owners send notifications to their customers within two weeks before the transfer is complete. This notification is essential for you to know where you should send the payment. If you send the payment to the old lender, it does not get lost since there is a set grace period for two months for the correction to be made.

The details of your mortgage do not change since the only thing that changes in the company’s name to whom you should address your check. Most people who receive the notice choose refinancing mortgages with a different company. You can either opt to work with another company or go along with the new arrangement. You can, however, prevent your mortgage from being sold by search credit unions or local banks.

Categories: Refinance-Mortgage