House Refinance Center
How To Refinance a House
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| Lock In Your Rate: Refinance Now The rate that you are quoted when you are shopping for a mortgage might be entirely different when you go to settlement. A rate-lock, or lock-in, is a commitment by the lender to guarantee and hold a specific rate for a specific time period. You may lock in the rate when you make the loan application, during processing of the application or after your loan is approved. The rate lock-in protects you from rising mortgage rates before the deal closes. However, what happens if the rates fall? Will you get the lower rate? And if you get the lower rate? Is this considered a new rate lock, and do you have to pay again? To avoid any disappointment, you need to have these questions addressed. Your lender might have a maximum time the lock-in rate is good for. For example, if your lender's policy is to hold a rate-lock for 60 days, you have to decide if thr deal can be closed in that time period. Remember, you are paying for this option. Usually it would cost you one point, which is 1% of the loan amount. So it isn't cheap. We would suggest locking the rate when you apply for the mortgage. You then have to do your part in getting the deal closed on time. Gather all your documents, and be ready to present them to the lender when he asks for them. Many lenders use a checklist that shows all the documents that are required, and the terms and conditions that have to be met. As you satisfy a condition or provide a document, those items are crossed off the checklist. Always ask your lender to fax or email you an updated checklist. This is your proof that the lender has received the information. When all the items are crossed off, the file is complete. Some areas that are of concern and cause the file to be delayed at closing are appraisals, employment letters, and the settlement fees. Appraisal When a full appraisal is required, the appraiser makes an appointment to visit the house. He takes several pictures, inside and outside, of the house. He then has to be paid. Cash is preferred so you should be prepared. Have someone at home and leave the cash. With cash you won't have to wait until a check clears your bank. This solves a major problem. An appraiser will not release the appraisal report until he is paid in full. You won't have to wait until a check clears the bank. Employment letters Employment letters can cause some major delays. If your lender wants to verbally verify your employment, he will need to speak to the person who signed the employment letter. It might be difficult reaching the individual on the phone. The person might be in a meeting, away on a business trip, or possibly on vacation. If you know that your supervisor will be away from the office, let the lender know immediately. Some workers set aside a couple hours a day to return phone calls. Let your boss know that the lender will be calling, and let your lender know the best time to call your boss. Anything that you can do to speed up the process, go ahead and do it. Settlement fees Finally, the settlement fees can delay your closing when you are paying out-of-pocket. Ask the lawyer, or settlement officer, to send you an invoice by fax or email. Confirm how he wants to be paid. Some prefer a regular check, others insist on certified funds. The reason you want to close on time is that if you close after the lock-in period expires, the lender might not honor the lock-in rate. You might end up paying a higher rate, and that is wasted money. Usually, the lender doesn't have a choice. Mortgages are packaged and sold on the secondary market, and the lender might not be able to sell your loan at the old rate. The lender charges a fee for holding the rate. To get the terms you must close by a certain date. Lock-ins for 30 days are common, although some lender will offer as little as 7 days, while other lenders give up to 120 days. The more time you have, the more you have to pay. The lock-in period should be long enough to allow for the processing of the application and the settlement. Before you sign for the lock-in, ask the lender for an estimate of the time it would take to close your particular loan. Refinances are generally done within 30 days, so you do not want to pay for a 90 day lock-in. Get it in writing Always get your lock-in agreement in writing. The loan commitment is not a lock-in. The commitment promises to give you a loan, and it can contain a clause that mentions the lock-in. However, the commitment is offered after the loan is approved. You want to get the rate lock-in at the time of the application. |
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| When NOT To Refinance Your Mortgage In a perfect world you would never have to refinance your mortgage. But we are living in troubled times. We have rising defaults and foreclosures, and anxious lenders tightening their underwriting guidelines. Ideally, you should refinance your current mortgage once, and once only. Multiple refinancing can wipe-out your equity, and can increase costs. A refinance does not eliminate your debt. It is just a strategy for moving debt from one or more boxes, and putting it in a different box. If you are 12 years into a 25 year mortgage, you should try all available options before you refinance. And if you are facing retirement in the next 5 years, try your best not to refinance. If you do refinance in your golden year, put aside a portion of the money to purchase an annuity. This would give you a monthly cheque in your retirement. |
| Recasting Is A Great Option Recasting a mortgage is an option available to a homeowner who might be distressed and having problems making the payments. It is quicker than the traditional refinance, and the lender generally waives the fees. Example: The homeowner takes out a mortgage for $100,000 with an interest rate of 5.5% and amortization of 30 years (360 months). About 7 years later, 84 payments later to be exact, the homeowner is having money problem. He goes and explains the situation to his lender. The lender recommends a mortgage recast. The mortgage balance after the 84 payments is $87,175.17. So the lender sets this amount as the new mortgage balance, keeps the existing mortgage rate of 5.5%, and changes the amortization back to 30 years (360 months). The new payment, principal and interest is now $494.97. This is $72.82 less than what the homeowner was paying. The important feature of the recast is the fact that the equity is preserved. The almost $13,000 that the homeowner built up is intact. |
| Mortgage Refinance 101 In the current mortgage market we hear lots of talk about refinancing. In fact, refinance activity is keeping the housing market from falling off the cliff. There are a few steps you should take to get the best deal if and when you do refinance. Shop around Your current lender is not the only option. Shop around to 3 or 4 different lenders. Test the waters. If you decide to stay with your current lender you will be bringing some important information to the table. The fact that you have done your homework, and can discuss terms, rates and various options, is enough to get you 0.50% off the rate. Know your break-even point. All businesses have a break-even point. The money coming in versus the money going out. (layman's terms). With your mortgage you have to use a similar approach. What is the cost of refinancing versus how much is it saving me over a certain amount of months. Will it take 60 months to recoup your costs? or will it take 120 months? The quicker you recover the costs the better it is for you. Establish the value of the house Be aware of the difference between an Assessed Value and an Appraised Value. The assessed value is the value that the tax assessor uses to determine how much taxes you have to pay. The appraised value is the market value, or the value that a prudent person will pay for your house. If you are in doubt about the value of the house, pay for a professional report. This is money well spent. |
| Don't be afraid to refinance. Just be sure to do your homework. Crunch the numbers before you sign on the dotted line. Stay away from an adjustable rate mortgage, unless you fully understand the upside and the downside. Watch the above video. |