Mortgage Refinance

Are mortgage interest rates going to go up soon?

The mortgage interest rates have been very low in 2009 and are slowly inching up to higher percentages every day. The reason for the increase is the speculation that the Fed is going to increase the interest rate very soon. When the Fed's interest rate is low, which is currently almost zero, it keeps the banks' cost low therefore it can afford to keep the mortgage interest rate low. The banks and agencies that lend money try to keep the mortgage interest rates low so that they can compete with the others and attract the maximum number of mortgage seekers. When the Fed starts increasing its interest rates, the cost for the banks goes up and therefore the mortgage rates also go up.

 

Secondly, for a good part of 2009, and even in the beginning of 2010, the stimulus from the government and its efforts to buy mortgage securities have been keep the mortgage interest rates low, but the government would be ending both these factors that keep the interest rates low, as the global and the US economy improve.

 

How to get the best mortgage refinance rate?

 

The best mortgage refinance rates can be found by shopping around and checking who is offering the lowest mortgage interest rates. Another factor that can help you get lower rate is your own credit history. A good credit history tells the lender that you are a responsible borrower who is less likely to default on mortgage payments. Hence the lender gives you a lower rate to earn your business. If the bank has to lend money to a person who is not financially responsible and has a bad credit history, it ends up taking more risk and to cover its bases, the bank lends the mortgage at a higher interest rate to a person with a bad credit history than it does to a person with a good credit history.

 

The type of mortgage and the amount of the loan also impact the mortgage refinance rate. A larger loan amount is riskier for the bank and therefore it might attract a higher interest rate. If you are looking for a fixed interest mortgage, it would normally have a little higher interest rate than the adjustable rate mortgages. However, the adjustable rate mortgages (ARMs) have a lower interest rate only for a few years after which the rates adjust according to the then current market rates which can be substantially higher than what one starts with.

 

What role does a broker play in mortgage refinance?

 

A broker is in the business of arranging mortgages for many people every day and therefore has the knowledge of the best rates available. The brokers can also negotiate better with the banks because they know the rules and the processes. The home owners normally are in the market for a mortgage only once or twice in a decade, so they are less likely to be in touch with the latest rules and the best mortgage rates available.

 

A broker can also help you understand the different types of mortgages and the options available to you. He or she can also explain if you can get a better interest rate if you can make a certain amount of down payment to bring the mortgage interest rates low.

 

Can HELOC prevent me from refinancing my mortgage?

 

A home equity line of credit, or HELOC, is a loan taken against the equity of your home. Even if you have not taken out any money or if you have paid off the money against the line in full, an open home equity line of credit is treated by the banks as the amount that is outstanding against you and therefore reduces the equity of your home by that amount. A bank would normally lend you a mortgage is that not more than the 80 percent of the appraised value of your home. A home equity line of credit brings down the equity and therefore you may not be able to refinance. An open home equity line of credit does not create problems if you have a lot of equity in the home, your home equity line of credit is small and you are seeking only a small amount of loan.

 

Is an adjustable rate mortgage good for me?

 

Many people consider an adjustable rate mortgage to be a good choice if you are planning to refinance or sell of the home before the adjustable rate mortgage period ends when the interest rates adjust according to the market value. So, if you have a 5 year ARM, and if you plan to sell off your home in about 3 years time, you might want to use a 5 year ARM and take advantage of the lower interest rates. However, if you plan to live in the house for a long time, it is advisable to seek a fixed rate mortgage as the interest rate for a fixed rate mortgage does not rise with the market conditions. Therefore, you can plan your finances and be sure that your monthly mortgage payments are going to remain the same for the entire life of the loan. If the rates go down, you can always refinance and lock in the lower mortgage interest rate.

 

What is an interest only mortgage?

 

An interest only mortgage is a very risky loan. It seems to be a very attractive option since the initial monthly payments are very small as you need to pay only the interest amount and do not pay the principal. Say, if you get a 10 year interest only mortgage, for the first 10 years you pay only the interest and after the first 10 years are over you start paying the interest plus the principal. Normally, all loans are calculated to be paid off in a 30 year period. Therefore, in the above example, you get only 20 years left to pay off the complete mortgage. Since the time period is small, the monthly mortgage payments that includes the principal amount, suddenly increase to very high values that commonly upset the monthly budget of the families.

 

The worst scenario happens when after the first initial period of the interest only loan ends, and the price of the home goes down. Now since you are left with the full mortgage unpaid, and the home value being down, you end up being “under water” where what you owe is more than the value of the home. If you are under water, you cannot refinance either unless you make enough down payment first so that you are not under water.

As a matter of fact, the one of the major reasons for the collapse of the economy in 2008 was the defaulting on mortgage payments by irresponsible homeowners.