Mortgage 101

The Financial Benefits of Refinancing

Coins in glass jar for money saving financial concept

Coins in glass jar for money saving financial conceptRefinancing is something that most adults will think about at some point in their lives. The reasons why homeowners choose to refinance will depend on their personal circumstances. One of the main reasons being because they are no longer able to afford the monthly mortgage payments and are therefore seeking out an option with a lower interest rate. Converting to a fixed-rate mortgage from a floating rate mortgage (better known as an ARM or adjustable-rate mortgage) could ease the financial burden faced by homeowners who are trying to hide from the rate-inflating cloud that looms over them.

Whatever your reasons for refinancing might be, just keep in mind the basics before you take the next step.

Smart Reasons to go Down the Refinancing Route

Do you want to shorten your mortgage? If so, you should definitely consider going down the refinancing route. In your particular situation, an option that could mean paying lower interest rates is definitely a smart move.

Here are some top reasons to refinance:

Consolidate Debts – When debts pile up, a homeowner can relieve themselves of financial worries by using any equity that has accrued on their home to reduce the debt pile.

Explore Loan Types – Unless you know exactly what loan options are made available to you, how are you supposed to know which type suits your circumstances? Although interest rates might be lower when you first start contributing to a mortgage with a variable rate, they might spike when you least expect it.

Adjust Repayment Terms – Falling into a financial predicament is nothing to be ashamed about. Simply take action and prevent the problem from worsening and tarnishing your credit score forever by refinancing. By doing so, you can discover what options are available regarding repayment terms.

Does refinancing have an impact on credit rating?

We could have talked about this in the list above, but let’s go a little more in-depth about refinancing and the way it could influence your credit score. The truth is that your credit score could be positively impacted immensely if you finance wisely. Don’t expect the change to be instant, but do expect it. A good credit will not only make mortgage hunting easier but also, job searches! For this reason, financing is a long-term worthwhile option that could present you with further lending possibilities for the future.

Things to Keep in Mind Before Refinancing

The standards that have been set out for loan approval are not quite the same these days as they were many years ago. If your credit score is below 720, obtaining financing might be a struggle. Refinancing with home equity puts you in a good position, as does having a good debt-to-income ratio. The rules for lending based on the debt-to-income ratio have tightened up, also.

Generally, you will be granted refinancing if your ratio falls somewhere between 36% and 40%. If you are willing to pay an increased interest rate to fund the closing costs, this will improve your chances at obtaining home refinancing.

Putting Things into Perspective

We all have debt obligations and as nice as it would be to not lose a valuable night’s sleep over them, it happens. With refinancing options, you can lift a weight off your shoulders. Furthermore, the reduced monthly payments could aid you in improving your credit score, so keep your options open and make an informed, confident decision.

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Guide to Understanding Fluctuation in Rates

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19554825_10158964647830013_1842381175699724183_nPeople everywhere are always asking themselves, “What is causing a fluctuation in rates?” and the answer to this question is somewhat complex. What you must understand when dipping your fingers in the financial pot is that currency rates are constantly changing. If we knew when it would happen, wouldn’t we be doing something to change it? Inflation is inevitable, from political and economic factors to the many variables that influence rate fluctuations.

Since it is hard to predict precisely when inflation or deflation will occur, you would benefit from getting one step ahead of the game. How, you ask? When you gain a broader understanding of rate fluctuation, this knowledge could aid you in getting financing.

A Brief Definition of Inflation

Before you can properly understand why rate fluctuations occur and what they mean for your borrowing ability, you ought to understand what inflation actually is. To put it simply, inflation is when the average cost of services and/or goods rise. The weighted average of a typical household’s total expenditure is usually the type of data used to determine inflation, which could be impacted by anything, such as a fluctuation in oil prices.

The Influencing Factors of Fluctuating Rates

Economic stability is dependent on numerous variables. Exactly which variable is going to cause the most damage depends on the time and situation. When the economy improves or gets worse, it will have a direct effect on consumer spending and financing lending. Here are some of the main influencing factors of fluctuating rates:

1. Interest Rates

2. Government Debt

3. Recession

4. Political Stability

Since there is such a strong correlation between inflation and the above variables, there is no wonder why homebuyers are seeking out financing options as a safeguard from rate fluctuation.

How does increasing inflation affect mortgage?

If you are a fan of fixed rates and do not want to have to worry about how much you will be forking out each month due to inflation, remortgaging is the best option. Rate fluctuation may leave you feeling uneasy about how much you are actually spending to live in and run your home; your pride and enjoy. With that being said, keep in mind that increasing inflation can impact the overall price you repay for the biggest and most important investment of your life.

Fixed or Floating Rate – Which option is less risky for rate inflation?

Choosing between the two is quite simple, if you have taken the above information into account. Anyhow, let’s go over the two general financing options:

Fixed Rate – Generally, a lender will provide the borrower with a loan that is tied to a fixed rate of x amount of years. Extensions are possible and the benefit of this option is that whoever goes down the fixed route will have the peace of mind that rates will not fluctuate.

Floating Rate - Of course, there are benefits associated with the two. For example, this option allows the borrower to lend for a longer period of time. However, interest rates will rise after a certain period of time therefore the floating rate option does not completely exclude rate fluctuation.

Whether you intend on taking out a loan to help with mortgage payments or to assist you financially for business purposes, the more well-versed you are on the subject, the easier it will be to navigate your way through the financial maze.

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Top 10 Mortgage Mistakes to Avoid

Even the most seasoned borrowers will admit that they’re guilty of errors in their approach to obtaining a loan for a new home. Here are the Top 10 mortgage mistakes to avoid, whether you’re a first time buyer or simply need a refresher course.

  1. Credit Problems: You don’t know what credit issues may be lurking in your history unless you run your report before applying for a mortgage. Do it early so you have time to address repairs and contest errors.
  1. Applying for New Credit: One of the major mistakes with mortgages is that homebuyers apply for a loan or credit card before or during the mortgage application process. Put off opening new credit accounts until after you buy your home.

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Do you need Lender Paid Mortgage Insurance?

If you’re currently shopping for a new home or considering it in the near future, it’s important to understand the various provisions of your mortgage. One term you may see in your documents is the arrangement for mortgage insurance, which is paid for by either the borrower or the lender. Lender-paid mortgage insurance does have certain benefits, so it’s worth considering for your home financing. Here are the answers to some common questions. 

What is Lender-Paid Mortgage Insurance (LPMI)? In general, mortgage insurance is intended to protect the lender if a borrower defaults on a home loan. Most lenders require mortgage insurance if a borrower pays less than 20% down payment for the loan. You can opt to get private mortgage insurance (PMI) or agree to lender-paid mortgage insurance. With LPMI, your lender pays the mortgage insurance premium on your behalf and passes the cost on to you, usually in the form of a higher interest rate.  (more…)

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What is Home Equity?

A thorough understanding of all the terminology related to your mortgage is critical, but many borrowers have only a general idea of what home equity means in the arrangement. In addition, there are many other factors that affect – and are affected by – the value of your home’s equity. Some basic information should help you grasp the concept of home equity and how this amount factors into your financial situation. 

Definitions: Understanding home equity starts with learning the terminology to hear how some of the different concepts work.  (more…)

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How does Foreclosure affect your credit?

Many homeowners have been hit hard by a variety of circumstances that make it difficult to pay their mortgage. Sickness, job loss, a tough economy and other factors may prevent you from keeping up with payments, leading your lender to foreclose upon your home. In some cases, being free of a mortgage can be a wise move; however, foreclosure has a significant impact upon your credit rating. Here are some answers to some common questions about foreclosure and credit scores.

How does the foreclosure process work? If you miss a mortgage payment, you can expect to start receiving phone calls and notices from your lender with demands for payment. After a certain amount of time, the bank will initiate pre-foreclosure proceedings with a “notice to accelerate,” “notice of lis pendens” or other documents; the exact process varies by state. (more…)

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5 Things You Need to Know About a 5/1 ARM

There are a number of different types of mortgages. Keeping them all straight can be confusing. Which kind is the best for you? Which one will cost you the least amount of money? Well, the two most basic types of mortgage are fixed rate and adjustable rate. A fixed rate mortgage sets your loan at one particular interest rate, which doesn’t change over the entire course of the mortgage. An adjustable rate mortgage (ARM) can have its interest rate raised or lowered at certain times, based on the fluctuations of interest rates in general.

If you’re getting a mortgage when interest rates are especially low, a fixed rate mortgage is a good option, as it will allow you to lock in the lower rate and not have to worry when they start to rise again. An ARM is a better option when rates are higher, as you can have the opportunity to lower your rate later on. (more…)

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Everything You Need to Know About VA Loans

Everything You Need to Know About VA Loans

Everything You Need to Know About VA LoansIf you’re a Veteran of the U.S. Armed Forces or in active duty, you might be aware of a specialized home loan program administered by the Veteran’s Administration. There are significant benefits to obtaining a mortgage backed by VA support for eligible borrowers, so the plan is worth looking into if you think you qualify. Some general information about VA loans, the advantages and the financing process will be helpful if you’re considering one.

What is a VA loan? It’s a home loan backed by the VA which is available to members of our nation’s military, either active duty or those who have served in the past. The federal government doesn’t actually provide the loan funds, but the Department of Veterans Affairs acts as a sort of co-signer on loans for those individuals who qualify. (more…)

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