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Five-Year Mortgage Rate Freeze Looms
Wednesday December 5, 8:42 pm ET
By Martin Crutsinger and Alan Zibel, Associated Press Writers

Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years WASHINGTON (AP) — The Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.

The aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of up to seven years and mortgage industry arguments that the freeze should last only one or two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with mortgage industry officials.

Treasury also announced there would be a technical briefing to explain more of the proposal’s details.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — to ensure the break is not given to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

In many cases, the higher rates will boost monthly payments by as much as 30 percent, making it very difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif.-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed. They opted for a proposal that was along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Paulson and other federal regulators began holding talks with some of the country’s biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical subprime loan — those offered to borrowers with spotty credit histories — the rates for the first two years were at levels around 7 percent to 8 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

The administration plan is designed to deal with the crisis by letting subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is hitting many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

Clinton said her own proposal that would impose a 90-day moratorium on foreclosures and freeze the rates for five years or until they had been converted to fixed-rate loans was a better approach that would help more people.

“Although the administration is finally giving the foreclosure crisis the attention it deserves, it seems that President Bush is going to give struggling homeowners far less than they need,” she said in a statement.

Mark Zandi, chief economist for Moody’s Economy.com, called the administration plan a good first step, but said the government eventually will have to go further given the problem’s size and the threat to the economy.

“This is the most serious housing downturn we have seen in the post World War II period,” Zandi said. “It is a threat to the broader economy. The risks of a recession are very high.”

Associated Press reporters Deb Reichmann and Nedra Pickler contributed to this report.

Fed Funds Rate down .5%

WASHINGTON (Reuters) - The U.S. Federal Reserve on Tuesday slashed the benchmark federal funds rate by a half-percentage point in a bold bid to buffer the economy from a housing slump and related financial market turbulence.
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The decision by the central bank’s Federal Open Market Committee took the overnight rate down to 4.75 percent, its lowest level since May of last year. It was the first cut in the interbank rate — the Fed’s main tool to influence the economy — since June 2003 and the first half-point reduction since November 2002.

Financial markets had widely expected the Fed to lower overnight borrowing costs, but were split over whether the move would be a quarter-point or more-aggressive half-point.

In a related move, the Fed also lowered the discount rate it charges for direct loans to banks by a half-point to 5.25 percent.

What does this mean?

According to Marketwatch:

Here’s what consumers can expect:

If a consumer is paying 8.25% interest on a $100,000 loan that is based on the prime rate — such as a home-equity line — a rate reset to 7.75% is likely. That’s the difference of about $500 a year, or roughly $41.66 a month in interest charges.

Resets on some adjustable-rate mortgages will be slightly better. Many ARM interest rates are based on an average of Treasury note yields coupled with a fixed margin, now at about 2.75 percentage points. At Tuesday’s 10-year yield of 4.49%, the rate is 7.24%. In July, it was at 7.77%. That makes the monthly payment on a $200,000 mortgage $1,363, about $73 less than it was in July. But Treasurys could head even lower following the Fed action.

Rates on credit cards, which have taken on a bigger role in consumer financing in recent months, are likely to dip a bit too, lowering minimum monthly payments.

Savings-deposit rates will go down, meaning that your bank balances won’t appreciate at the same rates you’ve seen all year.

Ditto on money market rates, hurting those on fixed incomes — generally the elderly — who rely on cash generated from such safe investments.

Interest rates on new loans for cars will fall, though it won’t have any effect on loans already in place. But Brian Bethune, the U.S. economist with Global Insight, urges consumers to wait until contract negotiations between autoworkers and their bosses are done this month. “They could pull out all the stops,” he said about automakers’ desire to unload inventory. And if the Fed lowers rates again next month, all the better.

I’ve been tracking this blog: www.iamfacingforeclosure.com for quite some time. Casey Serin, a young dude in his mid 20’s decides to become a real estate investor and does it without deep pockets or the necessary income or assets to qualify for the mortgages on the investment properties he buys.

I’m a 24-year-old aspiring real estate investor from Sacramento CA. After going to few seminars I bought 8 houses in 8 months across 4 states with no money down. I fixed and sold 2 and then ran out of cash. I am now facing foreclosure on 5 houses. I’m learning my lessons, finding solutions and blogging about it. Comments appreciated!

Casey’s blog has gained national exposure including an article in USA Today entitled 10 mistakes that made flipping a flop.

Here’s a summary of the 10 mistakes:

Mistake No. 1 - Using ‘liar loans’

Mistake No. 2 - Overpaying

Mistake No. 3 - Lacking cash

Mistake No. 4 - Quitting your day job

Mistake No. 5 - Hiring an unlicensed contractor

Mistake No. 6 - Buying sight-unseen

Mistake No. 7 - Buying out of state

Mistake No. 8 - Buying too many properties too fast

Mistake No. 9 - Underestimating remodeling costs

Mistake No. 10 - Having a poor exit strategy

Casey isn’t the only one who caught the real estate investment bug and failed miserably but he’s the only one to really document his story as an RSS FEED.

I get a lot of email. Some are linking requests. Some are spam that somehow get through GMAIL’s spam filter. Some are mortgage requests. Some are mortgage questions. Some are mortgage vendors trying to sell me something.

On Sunday, I received a well written argument from a reader who asked me to post his response to the Denver Post article NO MONEY DOWN: A HIGH RISK GAMBLE.

Phil,

I enjoy frequenting your blog, and wanted to be sure to share this with you. I am an independent Mortgage Broker with my own company Source Financial LLC, and I wrote an extended response to The Sunday Denver Post’s lead article from September 17, 2006 entitled “No Money Down: A High-Risk Gamble” [www.denverpost.com/ci_4347686].

I found the Denver Post article to be riddled with misrepresentations, one-sided accountings, and dangerous misinformation, all supporting a traditionalist approach to mortgages that has put two-thirds of all families into home ownership, but yet has led to a situation where the average fifty year-old American is worth negative $7000, only 5% of Americans retire at age 65 in financial dignity, and 9 out of 10 Americans die in debt.

In reference to my 2000 word response, Denver Post Business Editor Stephen Keating indicated that “I will take the time to read it and digest your observations, and discuss it with the rest of the reporting/editing team here.” Article author and Denver Post Business Writer Greg Grifffin wrote “This is a well-reasoned and well-supported argument. I don’t agree with everything you’ve said, but you’ve managed to get me thinking.” Unfortunately, checking today’s (September 24) Sunday Denver Post and www.denverpost.com, my response remained unpublished…

A Response to “No Money Down: A High-Risk Gamble” – The Sunday Denver Post, September 17, 2006 lead article [www.denverpost.com/ci_4347686]

As an independent Mortgage Broker that owns my own company, Source Financial LLC, in addition to being affiliated with a larger mortgage company that handles the processing and servicing of my loans, Lion Financial Corporation, I read the lead article “No Money Down: A High-Risk Gamble” with great interest. Knowing that a lot of folks along the Front Range turn to the Denver Post as an objective source for information, I was shocked and dismayed by much of the information and conclusions that were put forth on a topic that already invokes a fight or flight response among many home owners.

100% financing loans have been an amazing tool that has greatly contributed to the 5% increase over the last twenty years in percentage of homes occupied by the owner. But it is not the lack of equity that is putting these borrowers into jeopardy, it is a lack of a flexible asset base to deal with changes that has been increasing the risk of these folks defaulting. In general, people that utilize 100% financing for home purchases usually are lacking the liquid assets, emergency funds, and overall wiggle room to deal with financial hardship.

Of course lenders usually have guidelines concerning liquid asset reserves that must be held by the borrower in order to qualify for a loan, but often they only require enough to cover two to four months of mortgage payments. When people do face catastrophic events rightfully referenced by the Denver Post, “job loss, medical problems and divorce,” those reserves can often quickly disappear.

But having equity in one’s home when faced with these situations does not “give homeowners options when they face financial problems,” because it is precisely when folks are facing such dilemmas that they are quite often unable to qualify for refinancing, as at that point in time they are too high risk of a borrower for lenders to work with. As a Mortgage Broker I am deeply disturbed by this fact, but unfortunately it is a reality that we all must face when dealing with banks and lenders.

And probably the most misunderstood aspect of homeownership is the fact that equity is a ZERO PERCENT RETURN INVESTMENT. Yet two-thirds of Americans hold the majority of their wealth in home equity, which is a non-liquid asset that gives them absolutely zero return. Many people confuse appreciation, which is the increase in home value due to market trends, with getting some kind of return on their equity, but that is a common misconception. That is why it is so important for homeowners to separate their equity from their home via refinancing, and put those “cashed out” funds into investment vehicles that offer an actual rate of return. In doing so, homeowners increase their overall liquidity, improve their capacity to face emergencies, reduce their financial risk, increase their rate of return, improve their tax deductions, and diversify their investment portfolio.

Instead of spending their liquid asset base (savings) to finish their basement and send money to their parents, such as in the case of Jose Garcia and Maria Vanderhorst, borrowers with 100% financing have to exercise greater financial discipline. And putting money down and getting into a 30-year fixed would not have improved their situation, as then their down payment would be tied up as equity, which is a non-liquid asset, money that can only be accessed through refinancing or by selling their home.

100% finanacing loans are not dangerous, what is dangerous is borrowers not having a liquid asset base to deal with life’s contingencies. Unfortunately, these are the type of borrowers that tend towards 100% financing, as it really is their only option for home ownership. And tying up their wealth in the straightjacket known as equity is not part of the solution, it is part of the problem. An incredible means to access equity for the purpose of greater fiscal flexbility and all the other goods mentioned above, or “cashing out equity as one goes,” is the Option-ARM loan, which received quite a misguided slamming in the Denver Post article.

The Payment Option Loan gives the borrower four different payment options each and every month: they can make an Interest Only, 30-Year amortized, or 15-Year amortized payment based upon the fully indexed interest rate, or they can make the minimum payment that is based upon a very low “start rate” (usually between 1% and 4%), which involves deferring interest (a.k.a. negative amortization), or adding the difference between the Interest Only payment and the minimum payment onto the principal of the loan. Now while most lenders offer the Payment Option Loan with an adjustable fully indexed rate, one that starts adjusting as early as the first month, some lenders offer the Payment Option Loan with a fixed interest rate for the first five years.

The Payment Option Loan has proven to be a favorite of Real Estate Investors and Real Estate Agents, as it frees up extra cash flow on a monthly basis for much greater investment opportunities. Knowing that equity is a zero percent return investment is some powerful information to have.

The annecdote concerning Louis and India Harts conflated the fixed “start rate” with the adjustable “fully indexed rate”, such that readers were left with the impression that the Harts’ interest rate went from 2.6% to 8.1%. The start rate, which determines how much the minimum payment will be, is not a “teaser rate” that “quickly shoots up”. Some lenders do gradually increase the minimum payment itself (not its determining start rate) on an annual basis, usually somwhere in the range of 7.5% per year, to keep the borrower from deferring too much interest. But the start rates is always otherwise a fixed rate. It is the fully indexed rate, upon which the Interest Only, 30-Year amortized, or 15-Year amortized payments are based, that is adjustable is this case. And this fact is consistent with the numbers quoted in the article: the minimum payment of $919 the Harts are making would be the combination of $721 (2.6% start rate on a $180,000 loan) and $198 of escrowed Property Taxes and Hazard Insurance, which is approximately what they would be for such a home.

In the Harts’ particular case, they are going to have plenty of time to refinance before their loan starts to recast when the principal hits 115% (which would be $207,000 in their situation), as they will be well below that total when their three year prepayment penalty period is up. So the answer to Louis’ “I don’t know how we’re going to do it,” is that when those three years are up, they’ll refinance and get themselves into a loan that they feel more comfortable with and educated about. Though given their situation, if properly understood the Payment Option Loan really is their best option.

My question is how can mortgage products themselves be blamed for foreclosures? At best the article points towards a correlation, but demonstrating causation surely requires more than offhanded references to what some unnamed experts stated the next wave of defaults “may” come from. Beyond unpredictable catastrophic occurences like job loss and overwhelming medical bills, foreclosures occur because borrowers are getting into loans that they do not understand, and often they do not know that they do not understand the mortgage product. It is the responsibility of the Mortgage Broker to completely explain all the details of any mortgage product to the borrower. But it is also the responsibility of the borrower to be certain that they understand the terms of loan before signing off on it at closing. Vehicles and guns both kill in the range of 35,000 Americans each year, but it is the human misuse due to lack of education, ignorance or simple negligance that creates this reality, much like in the mortgage scenario.

Every different mortgage product serves its purpose, and what works for one borrower will not work for another given the specifics of their situation. To label certain categories of loans as “high-risk gambles” or as leaving “no room for slips” ignores the millions of families that are in these loans and find that they very much work for them. It is also a disservice to consumers to mislead them with such one-sided representations.

The true irony of the lead piece in September 17th Sunday Denver Post is that the conclusion that “Option-ARMs… could fuel a surge in foreclosures in the next few years” is the opposite of what we find is actually going on in the mortgage industry, as Payment Option Loans have proven to have the lowest foreclosure rate of any mortgage product currently on the market. World Savings is a bank that specializes in this product, which they refer to as the Pick-A-Pay Loan, as more than 90% of the loans they outfit borrowers with are of the Option-ARM variety. As a lender they have less than a 1% percent foreclosure rate! But World Savings, along with the independent Mortage Brokers like myself that they work with, take on the responsibility of educating the borrowers as to how to properly and smartly manage this incredibly powerful mortgage product.

A lot of mortgage brokers I know will not touch Payment Option loans, but I believe that is primarily because they are not all that interested in educating the consumer. Why not just throw them into a 30-year fixed APR mortgage? Everyone pretty much knows how that works. But that is also how banks make of the most money off of borrowers! The “list of higher-risk, alternative mortgages” the article refers to are not only not necessarily higher risk (Payment Option loan has the lowest risk, as discussed above), but they also provide the borrower the opportunity to increase their monthly cash flow by lowering their monthly mortgage payments by as much as 40%. In this way consumers are empowered to “become the bank” and grow their own investment portfolio, rather than falling into the trap of handing over their hard earned capital to the banks in the form of a large down payment or paying down principal so that they can have more of a zero percent return investment, equity.

Affiliates of Lion Financial Corporation, like myself through my company Source Financial LLC, do not shy away from the privilege or responsibility of educating our clients how to properly utilize alternative mortgage packages. And why is this? Because when families are taught smart mortgage product and equity management, they learn to utilize their mortgage as a financial tool for building wealth, which easily makes a $500,000 to $1,000,000 difference for the borrower over the next fifteen to twenty years. The affluent have always understood how to leverage their mortgage, pay as little down as possible, and keep very low monthly payments in order to increase cash flow for investment purposes. The American middle class is being transformed by engaging in these very same concepts and increasing their fiscal discipline, and I absolutely would not have it any other way.

Brent Ritzel
President/CEO, Source Financial LLC
Denver, Colorado, USA
An affiliate of Lion Financial Corporation
303-590-8999
Brent.Ritzel@lionfinance.com

Rates pinch homeowners discusses the perils of option arms or creative financing. Here’s my take: These loans are very complex. If the loan terms confuse you, either the lender didn’t do their job explaining the loan or you simply just don’t comprehend all the math involved.

Start Rate is the bait:

For their new loan, Cordova- Holmes and her husband chose a so-called option adjustable-rate mortgage, which carried an introductory rate of 2.35 percent and gave her multiple payment choices each month. “I had a lot of financial obligations,” says Cordova- Holmes, an accountant who lives near Detroit.

Too good to be true:

Two years later, however, the interest rate on her loan has jumped to 8.75 percent, her loan balance has climbed to $324,000, and her minimum monthly payment has risen to $2,257. She says the terms of the loan weren’t clearly spelled out.

Deliquency increases:

Mortgage delinquency rates hit 2.32 percent in the second quarter after bottoming out at 2.06 percent in the fourth quarter 2005, according to an analysis by Equifax/Moody’s Economy.com.

The portion of adjustable-rate mortgages that were at least 90 days past due has climbed 141 percent in the past year, according to a recent study by Credit Suisse that looked at loans made to borrowers with good credit. That compares with a 27 percent rise in such delinquencies for fixed-rate mortgages.

Foreclosure is around the corner:

Until recently, most mortgage-payment problems were an unfortunate byproduct of major life changes, such as job loss, medical problems, divorce or a death in the family. But for the new wave of troubled borrowers, the problems stem largely, or in part, from the structure of their mortgage, housing counselors say.

In the last year or two, the 30 Year Fixed Interest Only programs have risen in popularity. These are 30 year loans that have an introductory Interest Only payment for 10 or 15 years before the loan amortizes to a fixed payment schedule.

Confused? Don’t be.

Basically, it’s one loan split into two:

The first loan is an interest only loan for the first 10 or 15 years. So if you took out at $250,000 first mortgage with a rate of 6.5%, the first loan has an interest only payment of $1354.

The second loan is a fully amortized loan for the next 20 or 15 years. So if you only pay interest during the first 10 or 15 years, your principal balance will stay at $250,000. Your second loan will have payments of $1864 (20 year amortization) or $2178 (15 year amortization).

The Real Estate Journal (Wall Street Journal’s Real Estate section) has an article on this loan, called New Type of Mortgage Surges in Popularity.

I get asked “What are rates doing?” more than any other question. Here’s what bankrate.com has to say about rates this week:

Rate: 6.56 percent (30-year fixed) Average Points: 0.39
Worries about inflation and interest rates pushed fixed mortgage rates higher for the third week in a row. The average 30-year fixed-rate mortgage increased to 6.56 percent, the highest since the week of June 26, 2002. The average 15-year fixed-rate mortgage popular for refinancing stepped up to 6.21 percent. On larger loans, the average jumbo 30-year fixed rate jumped from 6.68 percent to 6.73 percent. Adjustable-rate mortgages were also higher, with the average 5/1 adjustable-rate mortgage rising from 6.17 percent to 6.25 percent and the average one-year ARM notching higher from 5.83 percent to 5.89 percent. News about the tight labor market and rising prices for commodities like oil and gold are fueling inflation worries and the resulting uncertainty about further Fed rate hikes. Together, these are the forces helping lift bond yields and mortgage rates higher. Fixed mortgage rates are closely related to yields on long-term government bonds.

Editors Note: Due to the mortgage crisis, 1% mortgage loans may no longer exist. Visit our home page if you’re in need of a mortgage loan in Denver.

Many mortgage lenders advertise loan programs with rates in the 1 per cent range. We also offer a full variety of these types of loan programs but borrowers must realize that the 1 per cent aspect can be a little misleading. All programs that you see advertised with 1, 2 or even 3 per cent rates these days are payment option programs. These are great programs for certain borrowers but are misunderstood by many.

Exercise caution when following up on advertising that boasts a loan with a 1 percent interest rate. These loans are not for everybody and they are some of the most misunderstood loans available. There are many newer mortgage professionals who are not even fully aware of exactly how these programs work, and they are selling you on the fact that you have a fixed rate and payment of 1% for 5 years. Your minimum payment will usually go up by 7.5% each year. This means that if you have a $1,000/month minimum payment, the next year this payment would go up to $1,075. Also, most likely this minimum payment is still resulting in negative amortization. The 1 percent rate that you are being advertised and told is fixed for 5 years is actually only the basis of your minimum payment required on the loan. Your actual interest rate on the loan will be your margin (which is normally anywhere from 2% up to 4%) plus your index (which can be LIBOR, MTA, COSI, etc…). Therefore, you would actually have a much higher interest rate on your loan than 1%. These types of mortgages will allow you the most flexibility in your monthly payments and can help maximize cash flow, however they are not a good mortgage choice for every borrower. This is one reason to make sure you have an honest, experienced mortgage broker to work with, for all of your mortgage financing.

As long as your mortgage professional explains clearly how your payment works you should be fine. Most people run into trouble with this type of program when it�s not properly explained. There is no way your principle will go down if your payment is based on a 1% rate when your balance is being charged a higher rate.

Often times rates advertised this low are nothing more than a teaser rate. It makes for a nice sign or ad but the fine print tells you that this is an intro rate. Most convert to a normal rate in 30-90 days. Your mortgage professional can explain these type programs to you.

Before you decide to enter into a negative amortization program make sure that your mortgage broker fully explains the program to you and how it works. This type of loan is very useful to some borrowers but is not for everyone.

When you pay an interest rate that is below market average, such as with a pay option loan, you have a negative amortization loan. Basically, you are paying a much higher interest rate, but your payments are based on the low interest rate. The difference in payment is added to you loan balance each month. If you make the minimum payment every month, your balance will increase, and you could end up owing more than your home is worth.

Many homeowners are using the appreciation in there homes to get rid of high rate credit cards by consolidating. When you consolidate your loans you often reduce the amount of money your spending each month.

One of the main benefits to refinancing is to consolidate consumer debt. Consumer debt (i.e. Credit Cards ampersand Auto Payment) is typically at a higher interest rate and is never tax deductible. Interest paid on debt tied to your home is deducted from your income at the end of the year often substantially reducing your tax liability. This tax favorable status is one of the many benefits of refinancing.

Refinancing your home can save you hundreds per month when you consolidate debt.

What if you want to add on, remodel or update the kitchen? You may not have the cash to do so, but the cost of improvements may be more than covered by the increase in value of the home. This is a great use for a home equity line of credit or a cash-out refinance.

Many people refinance to change from a variable rate to a fixed one or vice versa. Refinancing a high interest rate after a 24 month good payment history could save you a lot of money on your monthly payment.

If planning to purchase investment property, refinancing your primary residence is a great way to raise the cash for the down payment required.

Always consider your long term benefits of doing a refinance. The interest rate is not the most important aspect of the transaction. Even if your current rate is lower, you will probably save more money over time with a debt consolidation refinance then you would be with maintaining the situation you are currently in. Ask yourself a few questions: How long have I had this balance on my cards? At the rate I am paying my credit card debt down, how long will it actually take to pay them completely off? What will be my total cost once I have paid off all my credit card debt?

You can refinance to switch to an interest only loan to maximize cash flow or to switch to a Pay Option ARM to provide yourself with a lot of flexibility in your monthly mortgage payment. Some people also refinance simply to get a way from their current mortgage lender because they are not pleased with them.

Another main benefit of refinancing is to get out of PMI (Private Mortgage Insurance). In most cases if your Loan-To-Value was above 80% when you moved into the home then you most likely got stuck paying PMI. Your home may have appreciated quite substantially over the past year or two and with a new lender they will take new appraised value thus eliminating PMI.

Most people refinance to because of changes in their financial situations. Some, after determining that they can afford a bigger mortgage payment, refinance to a shorter loan term to save on the total amount of interest charges. Others, after experiencing a decrease in income, may refinance to a longer term loan to take advantage of the lower monthly payments. Yet others refinance to withdraw from the equity built in their homes for other financial purposes.

Using equity in your home to pay off high rate loans (credit cards, auto loans, etc.) may have certain tax benefits also. Consult your CPA for more information.

Many homeowners refinance to pull out cash to purchase another property.

To reduce the term or length of your loan, doing so can save you thousands of dollars in interest.

When considering the length (or term) for your mortgage will depend on many key factors. Considerations need to be made on your current financial situation and your goals for the future. You will need to consider how much you can afford to spend each month while still maintaining a acceptable amount of cash reserve in the event of an emergency is very important.

There are many options available for you to choose concerning the length of your mortgage. Options beside the typical 15 and 30 year terms are: 10, 20, 25 and 40 year fixed rate loans. Hybrid Arms offer your fixed and interest only terms in 3, 5, 7 and 10 year terms. A mortgage or loan consultant can help guide you through which loan term is right for you.

You should always consider your short and long term financial goals when considering the length of your mortgage note. You should weigh the benefits of the longer term mortgages in regards to monthly cost saving, compared to the shorter termed loans which will save you thousands of dollars in interest payments over the life of the loan. Always remember there are ways to pay your mortgage off earlier than the note term, which can also save you thousands as well.

Generally, you will use a longer-term mortgage to lower your monthly payments to a manageable level, and a shorter-term mortgage to save money over the long term and pay off your home quicker. Many people think that if you go from a 30 year fixed mortgage to a 15 year fixed, your payments will double. This is not the case. 15 year loans generally come with a smaller interest rate, which saves you some money. But it’s also important to know that most of your monthly payment is interest. A relatively small amount is paid toward your principle balance. For that reason, it doesn’t take a large increase in your principle payment to pay off the mortgage quicker.

If you can afford a higher payment get a shorter term mortgage, this will save you tens of thousands of dollars in interest charges!

If you just aren’t sure how long your mortgage should be, keep in mind that you can always pay more than the monthly payment, but you can never pay less. It may be wise to go with a longer-term mortgage to lower your monthly payment, and if you want you can pay extra to pay off the loan faster.

Its important to know that if you choose an adjustable rate mortgage, that it will still be amortized as if it were a 30 year fixed. Many consumers get this confused when they are shopping for a new loan. The 3,5,and 7 year ARMs offer lower interest rates and are a good way to keep your payments low.

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