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Best Time to Refinance Your Mortgage

 

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In order to best understand the most opportune time to refinance your mortgage, it is essential to understand how the process works. Refinancing is the process of trading in your old mortgage for a new one that features a new interest rate and term. When you refinance your mortgage, the loan officer who grants you the new mortgage basically pays off the remainder of your old mortgage and provides you with a new mortgage- by refinancing the remaining amount. Another way you can think about refinancing is that you are “resetting your mortgage” – not getting rid of existing debt.”

When you’re considering refinancing, it is important to do your research and crunch out the numbers to make sure that the deal is better over time as opposed to being beneficial short-term. Interest is the silent killer when it comes to refinancing homes; so planning into the future and weighing out scenarios is essential when you’re considering refinancing. This being said, there are major benefits to refinancing with the top three being lower interest rates over time and the opportunity to reduce the term of your original mortgage through standard refinancing, and to acquiring cash from the home’s equity value to use on other purchases through cash-out refinance transactions.

So once you figure out that refinancing is for you, when exactly is the best time to refinance your Mortgage?

  • You plan on staying in your home for a long time- Most of the time, when one refinances their mortgage, they end up extending the term of the loan. This means that you will be paying smaller amounts for a longer time. It is important to look at the savings compared to cost as well as how long you want to stay on your property. If you plan on staying for a while, and the numbers are right, refinancing is a good option to save money.
  • You want to shorten your Mortgage term- Refinancing your mortgage presents the opportunity for borrowers to reduce their mortgage term under reduced interest rates. As long as you’re able to pay the increased monthly payments (which vary from a little to a lot depending on the cost of the mortgage) this is a great option for people looking to pay off their loan sooner rather than later under ideal circumstances.
  • Current interest rates are at least 2% below your existing mortgage interest rate-The University of Minnesota reports that “Most lenders agree that the greatest gain in refinancing your home occurs when the current interest rate stands at least two percentage points below your existing mortgage loan interest rate and refinancing costs are affordable. If those two conditions exist, you should look into refinancing, which offers potential benefits, depending on your situation.”
  • Refinancing costs are reasonable- Most people don’t take into account that there are costs associated with refinancing mortgages. Usually one will have to pay closing costs (in the thousands), taxes, insurance, and prepaid items. Factor these costs into your refinancing decision. If the costs are reasonable and you are still saving money, go for it!
  • It will save you money in the long run- The ultimate goal of refinancing is to save money. By calculating monthly payments and long-term interest costs, borrowers can get a better picture and see if refinancing is a good option. If the conditions are right and you’re saving more money than you would on your existing mortgage, refinancing is a great option to save cash.

Remember: refinancing is a great option for homeowners under the right conditions. A tip to keep in mind if you’re considering refinancing your mortgage is to do it only once to keep incurring home equity (since refinancing resets your mortgage clock). If you are interested in refinancing your mortgage, our expert loan officers can help. Contact Alpha Mortgage today!

5 Things that will Destroy your Credit while looking for a Mortgage

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In the lending process, one of the most important things that brokers look at when determining if an applicant should be approved or denied for a mortgage is credit score. Credit score refers to the three-digit number that represents how well you handle money. Credit scores are calculated through data records that come from previous statements, monetary amounts owed, length of one’s credit history, new credit, and types of credit used. There are three different credit scores: Experian, TransUnion, and Equifax. FICO scores are what most lenders check when applicants are applying for a loan. There are three FICO scores checked, one for each respective bureau, to determine risk. FICO scores range from 300 to 850, and the higher the number is, the better credit one has.

According to the FHA, “Generally speaking, to get maximum financing on typical new home purchases, applicants should have a credit score of 580 or better.” Lenders will look at your score before approving you, and often during the loan process as well to make sure that nothing has changed. If your score is a bit lower than 580, don’t sweat it. As long as your credit future looks promising, you still can potentially get a mortgage, you just may have to pay a higher down payment. If you’re in the clear, congratulations! You are one step closer to owning your dream home. However, regardless of score, it is essential to avoid these 5 things when you’re applying for a mortgage that can potentially destroy your credit score.

1. Opening up a new line of credit- There are two types of inquiries when it comes to someone wanting access to your credit- soft inquiries and hard inquiries. A soft inquiry occurs when you want to check your own credit score, potential employers run background checks on you, or other small questions. A hard inquiry is a serious check into your credit either conducted by a lender, credit card issuer, or other financial institution. These hard lower your credit score for a few points and stay on there for up to two years. They must be authorized. When you open up another or multiple lines of credit during the lending process, this raises a red flag to your lender that you’re desperate for credit.
2. Closing a credit card account- On the opposite end of the spectrum, closing credit card accounts can also lower your credit score and cause issues when you are applying for a mortgage. According to Next Avenue, when you close out a credit card or consolidate all of your credit card debt onto one account, your credit score will take a ding. The article states “when you close a credit card account, you lose the amount of available credit on that card. This increases what’s known as your credit utilization ratio, or CUR, a figure that compares the amount of credit you’ve used with the total amount of credit you have available. The way to maximize your credit score is to have a low utilization ratio.” Avoid this when applying for a mortgage.
3. Not paying your bills on time- This is a given… but sometimes we forget that even the smallest slip in not paying bills can be an issue when it comes to your credit score. If you don’t already, set up reminders for every bill that needs to be paid a few days in advance to the due date.
4. Shopping around for a mortgage- It is extremely important to check your options when looking for a mortgage in order to secure the best rate possible. However, your FICO score takes a hit with multiple inquiries from different lenders. To compensate for this, within 30 days of a mortgage inquiry, additional inquiries are lumped into the first. What does this mean? If you are shopping around for the best mortgage rate, do so within a concentrated 30-day or less period.
5. Co-signing loans- As a parent, helping your child with a loan may seem like the best option to help them build credit, but be very careful when co-signing with your children for finances. It is in fact a good way to build their credit up, however, if they miss a payment it could shave up to 50 points off of your credit score. If you do co-sign, make sure to set reminders for when payments are due to remind your child and ensure that no payment will fall through the cracks. Yikes!

Want to apply for a mortgage? We can help.

Mortgage Market Update 12-16-14

Home builder sentiment across the nation edged lower in December, but still remains robust as 2014 comes to an end. The National Association of Home Builders Housing Market Index fell to 57 this month, which was just below the 58 expected and down from the 58 recorded in November. Any number above 50 indicates that more builders view conditions as good rather than poor. Within the report it showed that current sales conditions and expectations for future sales declined, while the traffic gauge of prospective buyers held steady.

In another sign that the U.S. economy has improved from the depths of the Great Recession, the Federal Reserve reported on Monday that factory production rose by 1.1% in November from October. Output at factories has risen 4.8% over the past year, which is above levels seen before December 2007. Despite a global slowdown, the U.S. has continued to recover, led by a boost in auto sales, food, wood, plastics and rubber products.

Today is the busiest day of the shipping season for the U.S. Post Office and FedEx with just 10 days until Christmas. The nation’s largest shipper, the Post Office, says it will process 640 million pieces of mail on Monday, up 33 million from last year. The Post Office further reported that between Thanksgiving and Christmas, it expects to deliver 12.7 billion cards, letters and packages. FedEx reports that it will ship 22.6 million packages on Monday while it will deliver 290 million packages during the same period, up 9% from 2013.

Mortgage Market Guide 12-01-14

The National Federation of Retailers (NRF) reported today that Black Friday weekend sales didn’t sizzle, which could be attributed to deals that began before Thanksgiving. The NRF said that sales from Thanksgiving through Sunday is estimated to hit $50.9 billion, down from the $57.4 billion in 2013, an 11% decline. The NRF went on to say that during the four-day period, 2014 online sales will be flat from last year. Another reason for the ease in sales could be that shoppers are holding out until later in the holiday shopping season to see if they can get better deals.

In a move that could potentially make it possible for hundreds of thousands of additional consumers to get mortgages, Fannie Mae and Freddie Mac have relaxed lending standards beginning today, December 1st. The new measures stem from an agreement in October where lenders had blamed the lack of clarity on when they would be penalized for making mistakes on mortgages they sell to Fannie and Freddie. The new standards should include faster turnaround times for mortgage applications to be processed. In addition, lenders be able to consider reduced credit scores and look past one time events when consumers suffered a hit on credit scores.

Fannie Mae released its Economic and Housing Outlook report for November late last week revealing that “economic growth in the U.S. is slowing from the strong mid-2014 numbers to a more moderate pace heading into next year.” Fannie Mae said that full economic growth is expected to be around a modest 2.5% in 2015. Fannie went on to say their view of housing starts, home sales, and home price trends will be largely unchanged next year and that “mortgage activity in 2015 will be very similar to 2014.”

Mortgage Market Guide

Americans filing for first time unemployment benefits fell to multi-year lows in the latest week as the sector continues to recover and move into greener pastures. The Labor Department reported that Weekly Initial Jobless Claims fell by 10,000 to 278,000 and is the second lowest level since the Great Recession ended. The four-week moving average of claims, which irons out seasonal abnormalities, fell to a 14-year low of 279,000, down 2,950 from the previous week. Since June, claims have averaged 293,000 per week compared to last year’s same time period of 343,000 and well below the 594,000 average per week in 2009.

Global outplacement firm Challenger, Gray & Christmas reported today that after falling to a 14-year low in September, planned layoffs by employers across the nation surged by nearly 70% from September. U.S. employers announced planned cuts of 51,183 in October, well above the 30,477 planned in September. October is the second highest amount of planned cuts since the May 2014 figure of 52,961 and marks only the fourth time in the last 22 months that planned cuts were above 50,000.

With the Thanksgiving Holiday quickly approaching, more Americans are expected to take to the skies to visit friends and relatives this season. Airlines for America reports that 24.6 million passengers will fly domestically between November 21 and December 2. That’s up about 1.5% from 2013, or 31,000 more passengers per day. U.S. carriers have reaped some big profits in that past year and are making sure that there is enough room to meet the growing demand. The top three destinations for Thanksgiving are Chicago, Orlando and Cancun.