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9 Refinance Mistakes and how to avoid them

When you've decided on a [url=http://www.mortgagefit.com/refinance.html]refinance[/url] in order to switch over to a better interest rate/loan, you should be aware of the mistakes most people make while refinancing and how to avoid them. A little know-how about the common refinance mistakes will prevent you from taking a wrong step during the process. Here are the [b:97fcd8bb5a]top 9 mistakes[/b:97fcd8bb5a] you should avoid when you refinance.



1. Refinancing without shopping around

Many believe it's easier to get a refinance from their current lender. But your current lender may not offer the best option in terms of rates, fees, and other terms and conditions. So, it's better to shop around and compare the offers until you find the right loan for you.

Even if you do decide to refinance with your current lender, you'll need to re-qualify for the new loan. This means your current financial situation will have to be verified by the lender.

2. Unaware of the Break-Even period

When you are trying to refinance, you'll have to pay closing costs that can be offset by your savings due to the lower interest rate. The time when your savings fully offset the costs of the new loan is the break-even period.

You need to calculate the break-even period, so that you can occupy the property until then and recoup your costs. This is helpful when you refinance with a similar loan in order to take advantage of a lower interest rate and monthly payments.

3. Not receive a Good Faith Estimate

Most lenders are likely to provide you with a Good Faith Estimate of closing costs within 3 business days of receiving your loan application. This helps you to trace any hidden costs that you can avoid. So if the lender doesn't provide you with an estimate, try contacting the lender. If the lender refuses to provide you with an estimate, contact another lender who will.

4. Considering Assessed Value of property

Do not depend upon the county tax assessor's assessed value of your property. The loan amount isn't based on the assessed value, but on the appraised value of your property determined by a real estate agent using either the Sales Comparison Approach or the Cost Approach.

5. Paying for an appraisal even if home value is low

It's better not to agree to pay for a formal appraisal when you are aware your appraised home value may be low enough to qualify.

If you think the appraised value of your home is low enough to get a good refinance loan, then you should ask your current lender to determine your home value using the automated valuation model (AVM). This approach takes into account the value of similar homes in the neighborhood.

The appraiser gives you a range of possible home values, which will allow you to determine whether you can afford the home with the financing that is available. You can even check out the home affordability calculator to know how much mortgage you will be able to afford: http://www.mortgagefit.com/calculators/howmuch-afford.html .

6. Signing loan docs without proper review

Check the loan docs before signing on them. Read the terms and conditions thoroughly before you sign them. If possible, ask the lender to allow you to read the papers in advance because you will not get enough time to go through all the docs at closing.

7. Not providing relevant docs in time

You can prevent unnecessary delays in closing if you submit the required documents to your lender on time. Otherwise, if closing is delayed, and mortgage rates go up then you may be stuck with the higher rate.

8. Getting a verbal Rate lock

It is best to get the rate lock in writing from your lender. This written statement includes your interest rate, length of rate lock, and other details of the loan program.

9. Taking cash from a HELOC (Home Equity Line of Credit)

Lenders often require that homeowners wait at least 6 months after taking money out of a home equity line of credit, before refinancing.

Moreover, if you withdraw money from your HELOC for anything except home repairs and then refinance, lenders will consider the first transaction as a "cash-out". This is because you've already accessed your line of credit. So, it's a good move not to pull out equity prior to a refinance.

Refinancing mistakes can cost you a lot of time and money. So, it's better to avoid them and stay away from mortgage problems that could land you in foreclosure.
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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a mortgage that is fixed at 6.5% for 8 more years and then adjusts. When should I refinance?

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

It is really hard to time the market. You never know when rates will go up or down. I do know that right now the rates are low on a 30 year fixed. If you think you will be in the home for more than 8 years I would suggest taking a look at refinancing now since the rate is about 5.50% to 5.75% on a 30 year fixed, depending on credit score and equity. This will pay off in the long run. I watch rates daily and have been for years. My advice is that there is more room for them to go up from here, than down. If it were me, and I was looking to stay in the home long term, then I would refinance when the fixed rates were low, as they are now. This is why I do suggest looking at refinancing now rather than later.

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Rachel,

I don't think you should do it right now. After all, 6.5% is good enough in this market scenario and it's 8 long years to go before the rate would adjust.

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

If you plan on being in the home long term then there can certainly be a benefit to refinancing now while rates are low. A one percent reduction in rate reduces payments and interest. On a 150K loan, that is a savings of 1500 per year and over 8 years that is 12,000. Now I dont know what the loan amount is but if it is even higher then it's just more of a savings. Why should they overpay for the next 8 years?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I want to refinance my home equity on my rental house and take out more money to pay off debt. Will anyone let me refinance a home I'm not living in?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Lori,

If you own the home, then even if you don't occupy it regularly, you can refinance it. Please refer to a similar topic posted at http://www.mortgagefit.com/refinance/equityline-rentalhouse.html to know what others have to say.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If we (as parents) and our daughter do a [url=http://www.mortgagefit.com/quitclaim-deed.html]quit claim deed[/url] to our daughter's property, could we refinance her mortgage loan for a lower interest rate using our good credit rating?

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Mavery.

Is your daughter wants to quitclaim her property to you? If so then you should refinance mortgage. Now if you have good credit then you can get approved for the mortgage loan with lower rates and better terms. By the way, how good is your credit score? Can you afford the mortgage payments? Why does your daughter want to quitclaim to you?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

must appraisers inspect our home inside?

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Yes, the appraisers can inspect every room inside your home. Otherwise the appraisal will not be complete.

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Well that actually depends. Most lenders do require an interior inspection but some do not. Some even allow for an appraisal waiver meaning there is no appraisal required if your income, credit, and equity position is strong and the home is not located in a remote area.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a 30 year mortgage with a 6% fixed for the duration. I have seen rates as low as 4.25% with the current economic crisis. We have owned the home for 3 years and have made principal payments in excess of $3000 every year in addition to our normally scheduled payments. I am thinking that refinancing now and saving the extra 1.75% would be worth it but what if the rates go even lower? Would it be worth it to refinance at this time?

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Shana P!

Welcome to forums!

Keeping in mind the current economic crisis, rates are really low. You can refinance your current mortgage into a fixed rate one during this time. This will also help you in saving some money. It my opinion it is a good option for you.

Well, you never know whether the rates will fall further or not. I don't think you should wait for further lowering of the rates. In my opinion if you get good offer now, you should go for it.

Feel free to ask if you have further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have 8.5 more years to pay off my 15 year fixed rate home loan. I owe about $72,000 on it at a rate of 6.676%. My payment before tax and insurance is $910.03 per month. Would I benefit from a refinance? Do they refinance homes with a 8 or 9 year fixed mrtgage?

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome becky,

I think you will be able to refinance. But you should shop around a bit before zeroing on a particular plan. This will help you in getting an idea about the market rates and terms. Thus, it will help you in selecting the one which you can afford.

Moreover it is not necessary to refinance the mortgage with your current lender. So you can check out the plans available with other lenders as well. This community also has a number of lenders from whom you can seek a no obligation free mortgage consultation. Let's hope they will be able to help you.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Rates are low about the same as our current mortgage 5% we also have a [url=http://www.mortgagefit.com/home-equity.html]home equity loan[/url] that we used for an addition to our house. The interest rate which is variable, is great rate right now but ...

So what is the conventional wisdom on when to combine the two and [url=http://www.mortgagefit.com/refinance.html]refinance[/url]?

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi rasars!

Welcome to forums!

Yes, mortgage rates are going low. I have seen that a lot of people are refinancing their mortgage to take the advantage of the lower rates. You can try refinancing now. Check out the rates and terms with your current lender. You can also contact other lenders to find the rates and terms they are offering. This will help you in getting a fair idea about the market.

You can also seek a no-obligation free mortgage consultation from the lenders of this community. This will also help you in comparing the market rates.

Feel free to ask if you have further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thanks for the follow up. I have started talking with my current lender and with my previous mortgage broker (who said to go with my current lender as they could not match their rates.) This was great info. but I am after more wisdom.

For instance, one of the rules of refinancing is at least 1% rate decrease. This understandable for a primary but what about when you have a fixed primary and an adjustable home eq that you would like to fix and combine with your primary.

Right now rates are such that they equal my primary. So there is no benefit in fact a loss. But having the opportunity to fix my home eq and rolling it together with my primary is worth something. Just not sure what.

In the ideal world getting a 1% decrease would be great but 4% interest probably ain't going to happen. The other factor is that our primary is only $15k more than the home eq. (both are in $100k-$125).

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

As the rates are quite low nowadays, it would be better if you can refinance your fixed mortgage and the home equity loan together. I think it will help you in the long run. The rates will not be low always. So its better to refinance both the loans into a fixed loan.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello. I have a 30 yr fixed at 6.125% and would like to reduce my monthly payment from $1400. we have owned the home for 1.5 yrs now and are located in Prattville, AL which is currently booming. I have seen are rates around 5.5%. should I use the 2% rule as a minimum for refinancing? The only benefit I am taking advantage of is paying bi-weekly. the home value was 235K when purchased but county assessment in beginning of 2008 valued it at 203K

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi BB

I think refinancing is a good option for you provided if you are planning to live in the property for a long time. Remember that while you refinance the mortgage, you will have to pay the closing costs as well. You can speak to your current lender as well as the other lenders of your area and check out the rates and terms prevailing in the market. This will help you to decide whether you will be able to afford the payments or not. This community has a large number of lenders. You can speak to the lenders of this community and seek a no obligation free mortgage consultation. They will help you know what kind of rates you can expect to get.

Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Should I refinance a 30 yr loan down to 15 yrs. My current rate is 6%. I have 24 more yrs to. My 15 yr loan will be 4.75%?

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hey Brownis,

I feel it's a good idea to refinance the mortgage at a lower rate. Moreover refinancing will also lower the term of your mortgage as well.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

brownis, if the value of your home is adequate to cover your refinance, i am in agreement with adonis that you'll benefit by going ahead with that transaction.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am looking to re-fi my home and consolidate a 2nd mortgage and a credit card balance. My current mortgage is 137,000 @ 6.245% w/ 24 yrs to go. My 2nd mortgage is 37,000 @ 8%, credit card is 13,000 @ 10% for a total of 185,000. I am also considering an escrow for taxes= 7,500 & insurance 600yr. The loan rate is 5.50 % for 30 years. We plan on living in our home for the rest of our lives, we are 50yrs old. Is it wise to roll every thing into a new loan? At the present time the listed above expenses is about 2500 a month, a new loan would be around 1800 with eveything included. The lender says we can re-coop closing cost in 14 months. HELP ME

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

what kind of help are you looking for robert? it would seem you've thought this all out, and plan on moving forward. if that's the case, are you simply looking for validation?

if you can recoup your costs in a little more than a year, and you can be very, very conservative with your spending otherwise, it would seem a good move. just keep those credit cards in your wallet, or even better, in the freezer and don't make any big-ticket purchases if you can help it.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

When we bought our new (to us) home 4 years ago, we didn't sell our smaller home because we wanted to do some upgrades and repairs to sell. Then we decided to keep it as a rental until the market improved (ha!). We have a fixed 7.55% loan, with a $35K balance and a HELOC of $66K. I would make a wild guess that the property would appraise at about $125K to $150K, even today. Should I try to refinance the 7.55% first or try to get into a lower fixed for the full $101K?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

frankly, jo ann, refinancing investment properties is not a very popular item these days, but it's certainly possible. you'll find that it's going to be at a much higher price than what folk are paying for residential mortgages these days. if your value is in the upper range that you noted, then i'd think it would you'd be in good shape to refinance the whole package. right now, on a conventional, investment loan, you're looking at 75% as a maximum loan to value ratio to give you the best pricing, i believe. you can go to 80%, but (at least with rates i see at this moment), it's going to be costly at your closing.

you would want to try to determine actual value as best you can at this time. check with a realtor to see if you can get a value estimate, and that will allow you to make a proper decision on what to do next.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

hi , we have a 30 year mortgage with 19 years left. 8.5% int. We are 2 months behind. The bank is offering hardship modification . Should we ask for 20 year or 30 year at lower interest rate. Payments are 375.00 taxes are not escrowed. Should we just ask to move payments to end nothing else.

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi sheryl,

Loan modification is quite a good option in your case. I guess a 20 year term will be better than a 30 year term. You should also remember that you will have to pay the taxes apart from paying the monthly dues. If you are planning to accept the loan modification offered by the lender, I would suggest you to request the lender to explain all the details relating to the plan to you. This will help you in taking a decision.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

what is the current interest rate as of today for 10 year mortgage

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The current interest rate for 10 year mortgage is around 4.50%-4.55%.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

"current" in this case is as of the other day; rates are subject to change at all times, and at a minimum, daily. beware of any quotes you get blindly - they're only as good as the moment.

now, that's not to say that those rates above aren't reasonable. i'd expect rates to stay in that vicinity for a bit.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I got a 15 year fixed-rate mortgage loan with 6% interest. My original loan is $117,000 and monthly payment is $988 currently. Now my current balance is $53,000. Please tell me whether or not needing to [url=http://www.mortgagefit.com/refinance.html]refinance[/url]??? Thanks in advance.

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi A. Truong!

Welcome to forums!

You can refinance the property as the rates are quite low these days. However, it will also depend whether you are planning to stay in the property for a longer period of time. If you plan to stay in the property for more than 2 years, then it would be a good idea to refinance. If you do not wish to stay in the property then it is not a good option to refinance as you would be required to pay a large sum of money in closing costs.

Feel free to ask if you have further queries.

Sussane

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

"needing" to refinance is a personal decision. paying 6% for a 15-year loan right now is higher than what you can obtain should you seek a refinance.

as sussane has pointed, out you've got to analyze the cost efficiency of refinance (savings vs. cost). if it makes sense to you to refinance, then go ahead and do it.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We are trying to refinance our mortgage ($257,000), we also have a [url=http://www.mortgagefit.com/second-mortgage.html]second mortgage[/url] (49,000). Our broker is telling use that since our house is appraised at 350,000, he does not think the new appraisal will come back that high and he is suggesting that we wait about 45 day? I don't understand this, can you please explain this to me... Is it possible not to include the 2nd loan and just get the 1st loan refinanced? You help is greatly appreciated.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

elisa, i dont get the 45 days at all, but if your second mortgage was obtained after your first mortgage, you'll be limited to 85% of the current property value in your refinance request. so, if your home is worth $350K, the maximum loan would be $297500, and that would leave you short of paying off the two loans. that might still work, as you may be able to resubordinate the remaining balance. your scenario of leaving the second alone might work also.

there has to be some sort of explanation coming from him to say why wait 45 days, why an appraised value of $350000 wouldnt be an appraised value of $350000 - a real puzzler.

he needs to be more forthcoming with answers; our answers will be less than satisfactory because he presumably has facts that we don't have.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Is it true that as of April 1, 2009 the FHA instituted a new law in which the amount to be refianced can not exceed 85%

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Well...I haven't heard anything of this sort. Where did you get the news from?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

85% is the maximum loan to value ratio for a cash out refinance only. purchases are still at 96.5% as are rate/term refinances.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my current loan balance is 113000 on a 30year fixed rate at 6.5% lived in home for 2 and a half years home valued at 138000 is it worth to refinance

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

pp, it is worth looking at refinancing. you can probably get a rate up to 2% less than what you're paying now, and perhaps a bit lower. calculate the savings in rate and how much it's costing to get to that rate to determine if it's worth it. if you plan to be in the home for several more years, it is likely worth your effort.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I bought my house 14 months ago at interest rate 6.5 and second lien at 9.25. Now I am doing refinance, new appraisal report home value shows $15000 less than purchased price. so Its missing 80 or 85% equity line.
I locked at 5.25% to refinance for first lien, in this case is it worth doing refinance?
To meet 85% equity line, I have to make a down payment around $20,000.
My home zip code is 75056
Please guide me.

Thanks

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Your query has been replied in the given link:
http://www.mortgagefit.com/refinance/make-downpayment.html

Please take a look. Hope it helps you.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If I have fallen behind due to a sudden increase in number of dependents and a salary reduction, can I still refinance and get additional funds so I can reduce debt?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi salamander,

As you are past due on your debts, you won't be able to refinance your loan. However, you can always contact the lender for a loan modification. If the lender accepts this offer, you would get a lower interest rate to pay off the loan but the term of loan payment would get increased.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

have good credit but i bought it for my daughter a nd she skipped out on the payments.We picked them up because we co sign.The interest rate is 12% we have had this nice trailer for 6 years still owe .Is it possible to [url=http://www.mortgagefit.com/refinance.html]refinance[/url] the trailer at a lower rate.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Bill,

If you're current on your mortgage payments, then you can refinance the loan. This will help you in getting a better interest rate. I hope you have a steady income and a good credit score. In order to get a mortgage, you should have a credit score of around 740.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

adonis, there are plenty of mortgages available out there for folk with credit scores below 740. yes, with a conventional loan, a person is best served with an excellent score, but fha loans (and others) provide more than adequate financing for those with scores far lower than that.

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