I’m in the process of refinancing our mortgage.  I’ve debated whether or not to refinance to a 15 vs. a 30 year fixed loan or keep my existing loan.  I ran the numbers and it was hard making a final decision.  There are pros and cons with all three scenarios.  

Fortunately, I’m able to refinance because I have a Freddie Mac loan.  My mortgage company is able to refinance the loan without a formal appraisal, which would have caused problems due to current market value my home.

After some careful analysis I decided to go with a 15 year fixed rate at 4.25%.  I just couldn’t pass on the rate.  My existing loan is a 30 year fixed at 5.625%. My out of pocket cost to refinance the loan will cost approximately $1,187. My mortgage will increase by $147 per month which isn’t too bad.  I expect my property taxes to drop due the value of my home falling which will offset the additional $147 per month.

When I initially purchased the house if I had went with a 15 year fixed it would have increased my mortgage by approximately $350 per month, which I didn’t want to pay at the time.  I have paid 6 years of my existing 30 year mortgage, so now I will have 15 years left.  I suspect we may live in the house for at least an additional 5 years but you just never know what may happen in the next 5 years.

The answer to the question of whether to choose a 15 year fixed, a 30 year fixed or keeping your existing loan is “it all depends”.   Below are some of the things I considered to making my decision:

• Current personal financial situation
• Current mortgage interest rates
• Interest rates falling vs. increasing
• How long we plan to keep the house
• Home equity after 3, 5, 10 years
• Loan interest savings after 3, 5, 10 years
• Investing/saving the difference in mortgage payments of 30 vs. 15 year loan
• Interest left on existing loan vs. interest cost on new loan
• Extra payments on a new or existing 30 year loan (to reduce life of loan and build equity) vs. 15 year loan

When I finally looked at the extra cost per month, the interest rate, money saved in loan interest cost, equity built in 3, 5, 10 years, etc., the new 15 year fixed loan at 4.25% is a great deal.

Related Articles: Is it Time to Buy or Refinance Your Home?

A reverse mortgage is a type of home loan that lets you convert a portion of the equity in your home into cash. The equity that has built up over the years in your home can be paid to you. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. You are still required to pay your real estate taxes, insurance and other conventional payments like utilities.

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. The older you are, the more valuable your home is, the lower the interest, the more you can borrow. You can use an online calculator on the AARP website to get an idea of what you may be able to borrow.

You can be paid from a reverse mortgage in 4 ways: 1 – get cash all at once; 2 – a monthly cash advance 3 – a creditline which lets you decide when and how much of your available cash is paid to you; 4 – a combination of these payment methods.

To qualify for a reverse mortgage in the United States, you must be at least 62 years of age.  There are or credit or minimum income requirements, however, there are other requirements that homeowners must make sure they qualify for before they invest significant time or money into the process. You must also reside in the home. Some types of dwellings do not qualify such as mobile homes, however, condominiums and manufactured homes that meet FHA requirements may be eligible.

With most reverse mortgages the money can be used for anything, however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage and, if needed, additional personal funds.

Before proceeding with a reverse mortgage, applicants have to seek third party financial counseling from a source approved by the Department of Housing and Urban Development (HUD). The counseling ensures the borrower completely understands what a reverse mortgage is and how it’s obtained.
 
You can contact the Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.

For more information visit hud.gov.

Video:  Reverse Mortgage

Mortgage rates and home prices have fallen to all time lows.  This maybe the perfect time to purchase or refinance your home.  The pot is even sweeter for first time buyers per the stimulus package which offers first-time homebuyer an $8,000 tax credit for primary residences purchased between January 1, 2009 and November 30, 2009.

Last month I posted an article titled, “Is it Time to Refinance Your Mortgage?”  It included a list of different reasons for refinancing your mortgage which included:

• Switching to a fixed rate or an adjustable rate mortgage
• Improving the features of your ARM
• Building your home equity faster
• Reducing your monthly payments
• Turning home equity into cash

However, when looking to purchase a home or refinancing your mortgage there are many questions to answer, which involves crunching some numbers and your comfort level.  

Below is a list of questions linked to mortgage calculators to help answer your home financing questions?  I hope you find the calculators very useful!

Preparing for Home Ownership

• Am I better off renting?
• Am I better off refinancing?
• What home can I afford?
• How much should I put down for a new home?

Understanding Finances

• How advantageous are extra payments?
• How much can I borrow?
• How much can I save in taxes?
• How much will my mortgage payments be?
• Should I pay points to lower the rate?
• Which is better: 15 or 30 year term?
• Which is better: fixed or adjustable?
• Which loan is better?

Considering Home Equity Financing

• How much will my loan payments be?
• Should I consolidate my debts?
• Buying a vehicle – auto or home equity loan?
• How large a line of credit can I obtain?
• What will it take to pay off my line of credit?

Reference:

• View Mortgage Rate by State

Related Articles:

• Is it Time to Refinance Your Mortgage?
• Having Trouble Paying Your Mortgage?
• What is a Subprime Mortgage?
• What’s In the 2009 Stimulus Package for You?

If you are having trouble paying your mortgage, remember that President’s Obama Homeowner Affordability and Stability Plan is setup to help up to nine million families modify their mortgages to avoid foreclosure.

Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today’s lower mortgage rates maybe due to a decrease in the value of their home. While other homeowners are struggling to make their monthly mortgage payments maybe because their interest rate has increased or they have less income .

The government has setup a website at MakingHomeAffordable.com to help with loan refinancing and loan modification.

Eligible borrowers who are current on their mortgages but have been unable to take advantage of todays lower interest rates because their homes have decreased in value, may now have the opportunity to refinance. Through the Home Affordable Refinance Program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they own or that they placed in mortgage backed securities.

You may be eligible if:

• You are the owner occupant of a one to four unit home,
• The loan on your property is owned or securitized by Fannie Mae or Freddie
• At the time you apply, you are current on your mortgage payments (current means that you haven’t been more than 30-days late on your mortgage payment in the last 12 months or, if you have had the loan for less than 12 months, you have never missed a payment),
• You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house,
• You have income sufficient to support the new mortgage payments, and
• The refinance improves the long term affordability or stability of your loan.

To find out more information visit MakingHomeAffordable.com.

Mortgage rates are falling and you may be wondering if it’s time to refinance.  On the other hand, you may be also asking yourself if it would be better to wait.  Unfortunately, there are no specific guidelines on how long you should wait, but you should only refinance whenever there is a financial advantage to do so.

A good rule-of-thumb is to refinance when mortgage interest rates fall at least one percentage point from when you first acquired your mortgage.  If you acquired a 30-year fixed rate mortgage for $150,000 at 5.5%, but rates are now 4.5%, refinancing at the lower rate will save you $91.65 on your monthly payments.

There are other reasons you may consider refinancing which include:

Switching to a fixed rate or an adjustable rate mortgage – ARMs (Adjustable-rate mortgages) initially offer lower interest rates but can fluctuate up or down.  Switching to a fixed rate may give you peace of mind and lower your risk of your mortgage payments going too high. On the other hand, switching from a fixed interest rate to an ARM will reduce your monthly payments and is especially beneficial if you plan to sell your home in a few short years.

Improving the features of your ARM – Refinancing to a different ARM could reduce your monthly payments.  ARMs have protective caps, which limits how much your payments can increase in a given year and over the full term of the loan.  You may not be happy with the caps on your current ARM and switching to a different ARM may be more favorable.

Building your home equity faster – Switching from a 30 year mortgage to a 15 year mortgage will allow you to build up equity in your home faster; however, your monthly payments will be higher.  Additionally, over the life of the loan, you will pay significantly less in interest fees.

Reducing your monthly payments – Switching from a 15 year mortgage to a 30 year mortgage will lower your mortgage; however, you will end up paying more in interest fees over the life of the loan.

Turning home equity into cash – You may want to take some of the equity out of your home, which is called cash-out refinancing.  The advantage is that taking a loan secured by your home has a much lower interest rate than taking out an unsecured loan or credit card.  However, if the interest rate offered to refinance is higher than your current mortgage, then a home equity loan or line of credit may be a better a choice.

You will have to crunch the numbers when making your decision to refinance.  Keep in mind that if you do refinance, you most likely will incur application, appraisal and legal fees.  You may also pay for points to obtain a lower interest rate.  Typically 1 point equals 1% of a loan amount and will lower the interest rate by .25%.  Additionally, some lenders may charge you a fee for paying off your loan early, which is not allowed in some states.  Crunching the numbers will have to prove that your savings will be greater than the expenses you incur to refinance your home.

Above is a calculator to help you crunch the numbers and below are links to 2 other calculators you can use:

• http://www.move.com
• http://zwicke.nber.org

Related Articles:

• ING Direct Orange Mortgage Offering 4.50% ARM
• What is a Subprime Mortgage?
• Citi Homeowner Unemployment Assist Program
  

A subprime mortgage is a type of loan given to borrowers with poor credit histories; often below a 600 FICA Score.

As a result of poor credit scores, these borrowers do not qualify for conventional mortgages. Because subprime borrowers present a higher risk for lenders, subprime mortgages charge higher interest rates, above the prime lending rate.

There are several types of subprime mortgage available. However, the most common type of adjustable rate mortgage (ARM) charges a fixed interest rate and then converts to a floating rate based on an index such as LIBOR, plus a margin. The most popular types of ARMs include the 3/27 and 2/28 ARMs.

A 2/28 ARM has a fixed rate for the first two years and then the interest rate adjusts for the next 28 years, which completes the full 30 year term of the loan.  While a 3/27 ARM has a fixed rate for the first 3 years and then adjusts for the next 27 years. The 3/27 mortgage gives a longer period of fixed payments but comes with a slightly higher rate than a 2/28 arm would.

ARMs can be misleading because of the initial lower interest rate. However, when mortgages reset to the higher variable rate, mortgage payments increase significantly. This is the main reason that has caused the sharp increase in the number of subprime mortgage foreclosures that has lead to the current mortgage melt down.

Related Articles:

• How is Your Credit Score Determined?
• Video: Inside the Financial Crisis – Mortgage Madness
  

Below is the first video of NBC’s Dateline report titled “Inside the Financial Crisis: Mortgage Madness” (aired last Sunday 3/22/09).

The show takes an in-debt look at the current mortgage crisis that we have been bombarded with by the media.  However, Dateline gave a good explanation as to how it all started and how we got here.

What is amazing about the show is how people were getting mortgage loans that they clearly couldn’t afford.  The entire system got so corrupted from the banks, brokers, Wall Street,  ratings agencies to even the borrowers that everyone was just looking to make money and ignored the fact the borrower would not be able to pay back the money.   Isn’t that absolutely crazy?

As an example, one borrower was able to get a $260,000 loan with a monthly payment of $2,100 but the borrower had an income of $1,600.  Clearly, people lied to get these loans approved.  In my opinion many people should be sent to prison over the current mortgage crisis.

Video: Inside the Financial Crisis: Mortgage Madness

Visit msnbc.msn.com to view the rest of the Morgage Madness.