Information and advice on refinancing a high interest rate mortgage - The Bills.com Blog
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Information and advice on refinancing a high interest rate mortgage
Question: My husband recently received a raise, we are paying down a student loan that went to collections, and we have other bills that have fallen behind due to our 9.9% mortgage, a whopping 50% of our income goes to the mortgage, now it is going to increase in June. What can we do?
Answer: The answer that immediately pops up in mind is refinance. But given the fact thatyou have a collections record on your credit profile, I am guessing one of you has less than perfect credit. Although it might be a difficult proposition, refinance seems to be the only option.
If you want to apply for free and see if you can save with Bills.com's pre-approved lenders, just follow this link:
Mortgage Refinance Quote
But, you need to consider some very important factors before you start the process. Given where the market is today (tight lender underwriting, slightly cut interest rates, and new FHA guidelines) you should evaluate a few parameters and then decide if now is the right time to try to refinance to a fixed rate mortgage or to wait and see if you can stay afloat when your ARM re-sets. The specifics are:
1) How long you expect to live in the home (if you intend to live there forever, a 30 year fixed is a good idea. If you will flip the home in 2 years then a shorter term ARM is right for you)
2) Your debt-to-income (DTI), and
3) Your loan to value (LTV) ratio (amount of equity that you have)
When making loan decisions, one of the most important factors potential lenders review
is the loan-to-value ratio, or LTV, of the proposed loan. This ratio compares the amount of the loan you are trying to obtain to the current value of your home. The interest rates charged on 100% loan-to-value refinance loans, such as ones that many new homeowners seek, are generally higher than the rates charged on loans with a with lower loan-to-value ratios. However, if your credit score has increased significantly since you first purchased your home (or if your income has risen and your debt to income ratio has improved substantially), you may be able to obtain a lower interest rate regardless of your DTI.
One potential problem encountered by many borrowers trying to refinance their home loans are early refinance penalties charged by their current lenders. Many loan agreements, especially ?sub-prime? loans designed for borrowers with credit problems, state that borrowers must pay a penalty to their current lender if they wish to refinance their loan before the expiration of a certain period defined by the loan agreement. These ?penalty periods? vary from loan to loan, but are frequently between two to five years from the date of the original mortgage. Before you attempt
to refinance your current mortgage, you should contact your current lender to discuss whether or not your current loan agreement includes a prepayment penalty, and if so, its amount and when you can refinance without penalty. These penalties can be quite costly, and can easily make a refinance loan too expensive to save you money over your previous loan.
Lastly, depending on your loan size and a few other variables, you may qualify for an FHA loan (you cannot be larger than $417k in loan size and cannot have missed payments BEFORE your ARM loan flipped). Ask your lender or broker about if this is right for you!
If you want an introduction to pre-screened mortgage lenders that can help you evaluate these complicated decisions, Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find if there is a lender that meets your needs at: https://www.bills.com/mortage/refinance/.
I wish you the best of luck, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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