Mortgage Refinancing

Do you Qualify for a “Making Home Affordable” Refinance?

The government’s Making Home Affordable initiative is designed to help millions
of homeowners stay in their homes through refinanced mortgages or
loan modifications.

To qualify, you must:

• Own-occupy a one-to four-unit home. This plan only applies to those
  who own and occupy a property that is a single-family home, condo, duplex, triplex,
  or four-unit house.
• Be current on your mortgage payments. If you were late on your
  mortgage payment by more than 30 days or missed a payment entirely in the past 12
  months, you do not qualify. This requirement to be current is to show you can make
  payments.
• Owe between 80-125% of your mortgage. An analysis of
  Zillow Q1 Real Estate Market Reports shows that up to 36% of all homeowners
  with mortgages, or 20.1 million households, could now potentially qualify for the
  plan.
• Have a loan backed by Fannie Mae or Freddie Mac. Approximately
  60% of single-family loans are backed by Fannie or Freddie, but a homeowner may
  not know this about their own loan. If you don’t know, call Fannie at 1-800-7FANNIE
  and Freddie at 1-800-FREDDIE or submit online forms with
  Fannie and
  Freddie.
• Have a conforming loan. That means a
  loan under $417,000 in many areas or up to $625,500 in high-cost areas like
  San Francisco, Boston or Washington, DC. Even still, the
  Zillow Home Value Index (median home value) for the city of San Francisco
  is $724,244, which says that lots of people have loans higher than the conforming
  limit. (Note: the
  conforming loan limit for certain high-cost areas of the U.S. for 2009 mortgage
  originations is now $729,500.)
• Take this
  financialstability.gov Q&A to see if you qualify. If you don’t think you qualify
  for a refinance, you might qualify for a loan modification under the plan.

Mortgage Refinance Overview

You have an Adjustable
Rate Mortgage (ARM) which was doing fine enough that you bragged about it
but your loan is going to reset to a higher interest rate amidst market uncertainty
and everyone is buzzing about it. Lying awake at night is interfering with your
job, so you figure you’d better say goodbye to that low but fluctuating interest
rate, and get a nice secure fixed-rate loan before the swing hits the sky.

This is a common scenario these days as interest rates inch up and many homeowners
who opted for ARMs in the past 10 years are hoping to switch to a traditional loan.

Switching types of mortgages, as described above, is one reason people refinance,
which is simply replacing a current mortgage with another. But there are others.

Reasons for Home Refinancing

• Lower your interest, but keep your term: When rates drop you want to take advantage
  of it and lower your monthly payments, but keep the length of your mortgage.
• Take care of that balloon payment: You opted for a short-term ARM with a balloon
  payment and the due date is looming, so you have to come up with a longer-term loan.
• Shorten your term: Lower interest rates (or an increase in your income) mean you
  can pay down your principal faster.
• Credit rating change: Take advantage of an improved credit rating and get out from
  under that high rate you had to accept when you bought.
• You need cash: In some cases, you can refinance for an amount more than what you
  still owe on your home. Lenders limit the
  Loan to Value at no higher than 70 percent for this type of loan.

How Do I Get Refinance Quotes?

You can shop anonymously for mortgage rates for a refinance on Zillow
Mortgage Marketplace. Just submit a loan request and you will receive custom
quotes instantly from a marketplace filled with thousands of lenders. The process
is free, easy and best of all, you are anonymous.

• Shop Refinance Loan Quotes
• 
  What is a loan modification

Costs of Refinancing

Most of the things fees, appraisals, title insurance that went along with an original
mortgage hold true for a refi, which means it can cost a fair amount to change loan
types. How quickly you recoup the cost depends partially on how long you are going
to keep the mortgage. If you are going to be in your home long enough to recover
the costs, and get some benefit from lower interest payments over the life of the
loan, then it’s a no-brainer. But balancing the cost with the benefits of a new
mortgage is critical. Use an online calculator to figure it out.

Be sure to remember that closing costs include another appraisal (no matter how
recently you’ve had one), a new credit report, underwriting fees, title insurance,
escrow fee, recording fees, and perhaps other small fees. These costs typically
range from $1500-$2000. (Some lenders are willing to waive the closing costs for
a higher interest rate loan.)

Can You Pay Points on a Home Refinance?

You can pay points on a refinance loan, same as on an original mortgage, but unlike
with the original mortgage, the points are tax deductible over the entire term of
the loan rather than just in the first year. Points make sense when rates are on
the upswing and you want to get in on the lowest possible rate.

But, except in some cases, points are a fact of life: if you are paying a 1-point
fee on a $100,000 refi, you can add $1000 to your closing costs.

You also need to look at your current mortgage to see if there are pre-payment penalties.
And what happens to your old mortgage? It’s paid off by the new loan, as are any
other liens; at the end of the refinance process, ideally you should have only one
loan. (If you have more than one mortgage, however, it’s possible to refinance just
one of the loans if the lender agrees.)

When Does Home Refinancing Make Sense?

The easy way to figure out if refinancing makes sense is to figure out how long
it will take you to pay off the closing costs with the savings you realize with
lower monthly payments. If it is longer than the time you plan to stay in the house,
then refinancing might be a good option. You have fewer tax breaks with a lower-rate
refi, so be sure to ask your lender for a refinance break-even table that will take
that into account.

• Shop Refinance Loan Quotes
• 
  What is a Loan Modification