Refinancing your home

It really doesn’t matter why you want to refinance your home.  All refinances fall into two categories.  (1) Rate and term  (2) Equity cash out

“Rate and Term” - Your objective is to refinance your mortgage loan at a lower interest rate and lower your monthly payment, change the number of years to pay on the loan, or refinance your mortgage loan to change the way interest is charged. If you currently have an ARM (adjustable rate mortgage) you may want to change to a fixed rate mortgage loan. The adjustable rate mortgage (2/28) has the interest rate and payment that is fixed for 2 years and then the rate readjusts and changes up or down every rate change period according to the federally quoted interest rate for 28 years. There are other types of adjustable rate mortgages in which the interest can change up or down every 5 years, every year, every 6 months or even monthly. The fixed rate has the interest rate and mortgage payment set at the same amount for the term of your loan (30 yrs).

Lowering your interest rate may be desired because when you bought your house the rate was higher than it is now.  The Federal Government sets the interest rates in effort to control our nation’s economy.  The Federal Reserve loans money to banks and other federal or state lending institutions and they either raise or lower the interest rate as the economy changes.  In the early 1980’s the interest rate on a home loan was as high as 16% (payment on a $100,000 - 30 year loan was $1,345) and in the early 2000’s the interest rate on a home loan was as low as 4.25% (payment on a $100.000 - 30 year loan was $492) so this tells us the rate that is set by the feds really controls what you pay. Of course, as an investor in your own home, you want the rate to be the lowest – and this is what Mortgage Makers will do.  Mortgage Makers will skillfully “shop” you and your loan with as many lenders as possible to get you the very best interest rate at the time you are buying or refinancing your house – sometimes with 20 or more lenders.  Our loan officers are very knowledgeable about our lenders and are experts in locating the best loan for your circumstances.

Sometimes the best interest rate requires guidelines that you as the borrower cannot meet, such as, some conforming loans require the borrower to have a 750 credit score and have 6 months of house payments in savings and have over $750 extra income each month for each person in the family.  Also the “debt ratio” needs to be 28% (front ratio - income in ratio to current debt) and 36% (back end ratio - income in ratio to all debt including new home mortgage payment).

“Interest rate” can be confusing because the interest rate is just one entry in the calculation – other questions that also have bearing:

Credit score – conforming loans must be over 620 – usually loan 80% to 90%

         660                        90% to 95%

                                                                                720                        95% to103%

Many other restrictions apply to these loans, as the federal government sets the lending guidelines and all borrowers must comply with all their guidelines. FHA loans usually have these same restrictions and require explanations of certain problems.

 PMI (Private Mortgage Insurance) is required on any conforming loan over 80%. On a loan of $100,000 and a 30 year mortgage (360 months), this Private Mortgage Insurance payment required each month will typically be;

On a 80.1 to 85% loan (0.350) which is  $29.17 per month 

On a 85.1 to 90% loan (0.520) which is  $43.33 per month

On a 90.1 to 95% loan (0.780) which is  $65.00 per month

On a 95.1 to 97% loan (1.050) which is  $87.50 per month

Mortgage Makers has non-conforming lenders that only consider the back end debt ratio and it can be as high as 50% (a few as high as 60%) and if you are self employed, you may not even need to calculate a debt ratio.

Non-conforming or sub-prime loans can have credit scores as low as:

                      500 to 520  will loan from 80% to 100%

                      520 to 545  will loan from 90% to 100%

                      545 to 580  will loan from 95% to 100%

                      580 to 640  will loan from 95% to 100%

The restrictions are as varied as the lender’s or investor’s programs want them to be. Mortgage Makers can usually get anyone a loan. Based on the borrower’s  circumstances we search for the lenders that will fund the borrower’s loan. We have been known to obtain a 100% loan with many borrowers that have credit scores as low as 510, and 80% first loan and 20% second loan with credit scores of 500. This is our job to find you the loan that will work best for your situation.  If necessary we can help increase your credit scores so that we can get the loan that will work for you.  The interest rates are set by the lender and if your credit score is low we can close the loan on your home purchase now and at a later date can refinance your loan to get a better interest rate – Remember, non-conforming or sub-prime loans do not require the additional monthly lender insurance payment of Private Mortgage Insurance (PMI) that increases your monthly payment.

“Equity Cash Out” – This is pulling equity-cash out of your home for whatever reason you have – pay off bills, invest in the stock market, invest in a new business, pay off other high interest debt, remodel or add onto your house, down payment to invest in rental property, emergency, anything you desire.  Such as: If you bought your home 5 years ago and you may have only paid the mortgage principal down by $4,000 but the value of your house has increased by $20,000 you can pull out this $24,000 less the costs involved in processing a new loan. Note – maybe at this same time you can lower the interest rate to lower your payment, This is where Mortgage Makers loan officers search the conforming and non-conforming and sub-prime lenders to get you the amount of money you need and the best loan regardless of your current circumstances.