Refinance Investments at the Best Interest Rates

Real estate investment has become very popular in the last few years. With all kinds of “no money down” real estate courses being sold on infomercials and in every home business or investing publication that exists, people have rushed to buy properties for investment purposes. Unfortunately, many of these people are not interest rate savvy and are doing themselves a disservice by not refinancing some of their investment property mortgage loans.

Refinancing an investment property can be complex, but there are some things you can do to make sure you’re doing it at the right time and you’re getting the lowest interest rates possible. The key is to stay on top of the mortgage industry trends and know when to dig deeper and consider a refinance.

The first thing is, do your homework. Interest rates change constantly. The going rate this morning may change by this afternoon! Unless you know what it is, you don’t know if you’re getting the best deal or not. And it makes a big difference! Small adjustments in interest rates can mean tens of thousands of dollars difference in total payments over the life of the loan. Read the financial news. Track mortgage interest rate trends, especially in your country or local area. An educated consumer is a wise consumer. This applies to loans as well as any other purchased item.

Second, use a mortgage broker. These trained professionals know exactly how to get the lowest interest rates possible, no matter what your specific circumstances. If you have a poor credit rating or are self-employed, you have a unique situation that brokers are trained to handle. They have access to thousands of lenders, each with many different programs. They know how to evaluate these programs and find one that will fit your needs. In combination with your own expert knowledge of current economic trends, using a mortgage broker will help you immensely in finding the best refinancing deal.

Third, buy down as much as you can. “Buying down” is a term used to describe taking some of the interest expense up front as “points.” The more you can do this, the lower the interest rate you’ll end up paying on the loan. This is always a good idea. Buy down as much as you can afford to. It may cost an extra few thousand at closing, but it will save tens of thousands in interest payments over the life of the loan.

Forth, negotiate. It’s not very well known that you can negotiate to lower your loan interest rates. Talk to more than one lender, or even more than one mortgage broker. Make sure each knows that you’re talking to others. Indicate that others have given you a lower rate. Don’t lie, but always be prepared to walk away. If you’ve done your homework and know the going interest rates, you’ll find that negotiation will bring you to the rock bottom interest rates you’re looking for.

These four tips will help you save thousands of dollars with the proper refinancing to the best possible interest rates for your investment properties.

A Mortgage Refinance May Not Be for Everyone

The real estate business seems to be extra confusing in the last few years. Interest rates have gone down yet many home owners can not afford to keep the home they live in. It does sound very enticing to have lower mortgage payments but the thought of refinancing is often overwhelming to many home owners. There is never a perfect time to do any thing, most people know this. When it comes to mortgages and the fees involved, most people are quite hesitant.

If news is out about the interest rates going lower, this could, potentially be good news for anyone wanting to refinance. Not always, however. This is the time to begin the research and look into all the fine print. Initially, this would seem the perfect time to upgrade your mortgage but only if the other fees do not overwhelm you. The only way to evaluate these critical factors is to study and learn about them.

Consider refinancing your home by comparing your current rate with those being advertised. You can start by a search online for good rates. Verify what your actual current home mortgage rate is. Do a comparison of some of the reputable lenders in your area. You must remember to keep a list of all the critical questions handy each time you make a call. Do not be mislead by the lowest quote on interest rate for your home mortgage refinance.

Getting a great deal will depend on the down payments required, the duration of the mortgage, and the amount of the closing fees. If it is obvious that any of these are too high, it will not be a good move on your part. Other times, it is not so obvious and you will need to do some figuring with the computer. You will have to imagine several scenarios that could work and those that would not. For example, it could still be worth while if you plan on living in the home until you have paid it off.

Most people do not live in their homes for more than five years, usually. If this is true for you, then you may wind up paying more for the fees at closing than you could save by doing a refinance. It is important to find a source that will give you a good interest rate and zero to low closing costs.

Basically, your situation will tell you if a refinance could work for you this year or not. If you are stuck with an adjustable rate mortgage, it might be a perfect time to renegotiate for a fixed rate instead. Some of these trick the new homeowners with a very low interest rate the first year or so and then continue to raise the rate every few years with no cap.

How to Know When to Refinance

Refinancing can be a great money saving tool for homeowners, or it can be the wrong thing at the wrong time. Last year, according the Mortgage Bankers Association, Americans refinanced to the tune of $1.17 trillion dollars. The rising cost of fixed rate mortgages drove that to a mere $938 million this year. That’s still a huge number of people who choose to refinance their homes or commercial mortgages. Here are some guidelines to help you decide if this is the right time for you to refinance.

What to Know Before You Refinance

You need to be able to answer some basic questions about your home or real estate investment before you can make a wise decision about the best time to refinance. For instance, what is your current interest rate? Is it fixed or variable? Is your home’s value increasing? Can you afford the closing costs associated with refinancing? What are your plans for your home or real estate?

This background knowledge will help in several ways. If you plan to move within the next three years, or if the difference in interest rates in less that 1.5%, then refinancing might not pay off right now. Remember, once you refinance you need time to recoup the closing costs you have invested. However, if you have a variable rate that is climbing, or a significantly higher fixed rate, refinancing may offer you some appealing options.

Why People Refinance

People refinance for different reasons. In many cases, the decision to refinance can help to reduce your monthly payments and interest, or reduce the life of your loan and the principle owed. Others obtain a cash-out closing to make home improvements or pay off consumer and credit card debt. This method usually doesn’t lower your payments.

Before You Decide to Refinance

But before you jump into a decision to refinance, be aware that there are costs involved. Closing costs and points will affect how much money you must pay up front to refinance. A point is equal to 1% of the total amount of your loan. You should expect to pay 2-3% in points when you refinance. Just like when you purchased your home or real estate investment, the more money you put down, the lower your interest rate is likely to be. There are instances where you can get a no-cost closeout, and these are ideal, but not always available.

A word of caution; if you find yourself refinancing yearly to pay off debt, you’re not doing yourself any favors. In this situation you are probably increasing both the life and principle balance of your loan amount. This is a short-term fix that can have long-term consequences.

What Can Help

To help get the lowest interest rate when you refinance you can do one of two things. Put as much money as you can down upfront, or use that money to pay off consumer credit card debt. Since your interest rate and the amount you can borrow are tied to your credit score, it can save you money to improve your rating before you refinance.

And don’t forget to shop around. You will find a lot of lenders willing to work with you, and mortgage rate calculators are available on many real estate websites. A little homework now will save you a lot of money later.

Refinance Florida Mortgage Loans Now For Lower Interest Rates And More Affordable Payments

Average to above-average credit types stand to benefit from mortgage refinancing, especially in Florida. It is an attractive state for lenders who fund mortgage refinance loans. Known for having a booming economy and balmy weather, Florida is a popular destination for tourists, adventurers, young professionals, growing families, and retirees alike.

The population has been booming for decades as it is ranked 4th in U.S. Many new residents first experienced Florida as a visitor, loved it, and decided to stay. A booming population means the growing need for housing. Current mortgage and refinance rates have been lowered to fill that need, giving residents the opportunity to cash in on affordable (or more affordable) payments.

Real estate in Florida includes family homes, beach living, luxury estates, urban lofts, and some of the most sought after retirement communities in the country. Florida ranks low in terms of the tax burden placed on residents and research ranks it among the 5 lowest tax states in the country. It is also a prosperous state. Six of the 67 counties located in Florida are in the top 100 richest counties in the country.

With interest rates a low as they are, today is a prime time to get a new mortgage loan or refinance your mortgage. Why? It is quite simple. The Fed has taken serious steps and lowered interest rates for us to take advantage of. Generally, lenders find mortgage refinance loans in Florida pretty simple to close. Those two facts combine to make it possible to save hundreds, thousands, or even hundreds of thousands of dollars on your Florida mortgage or refinance loan. We do not know how long the record rate drops will continue. That is why the time is now. It will only take a few minutes to determine how much money you can save each month, and over the life of the loan.

For help securing low mortgage or refinance rates in Florida or any other state, visit http://LowRateSearch.com

Kind regards,

-Ken S.

The No Cost Refinance – Part II

In the first part of this two part series, we covered the different types of home loans and the role of a mortgage broker in the “no cost refinance.” Now let’s look at what information we need in order to maximize our savings. As previously discussed, the no cost refinance uses a lender credit to cover the cost to close a refinanced home loan. The lender credit is generated when the mortgage broker sells you a loan at a rate that is higher than the current market rate. This is known as the yield spread premium (YSP). The key to having the YSP work in your favor (cover closing costs) as apposed to lining your mortgage broker’s pocket is being well informed on the market wholesale rate and the YSP compensation.

Unfortunately, there is no clean cut way to decipher these two pieces of information, but there is a way to get a ballpark figure. The best proxy for the wholesale rate is the Fannie Mae Weekly Yield. This rate is published every Monday and corresponds to the yield (return) being offered on their current mortgage backed securities. Since Fannie Mae is huge agency backed by the “full faith and credit” of the US government, their rates are typically the lowest in the market, so this rate might be slightly lower than what banks are offering your mortgage broker. Once you have a proxy for the wholesale rate, you can determine the yield spread on your loan by taking the rate offered to you and subtracting out the wholesale rate. As an example, let’s say the wholesale rate is 4.5% my quote comes in at 5.0%, then my broker is collecting a spread of 0.5%.

The compensation for this spread is also hard to determine as it tends to fluctuate as market conditions change, but a good rule of thumb is around 1% of the loan value for every 0.25% above the market rate. Continuing on with our example, let’s say I was getting a loan for $250,000. That would mean the bank issuing the loan would be paying my broker an additional $5,000 (2% of the loan value since my rate was 0.50% above market) for bringing in a loan that was priced better than the market rate. It is this additional compensation that we want to use for closing costs.

The next logical question is, “why would I want to have a higher rate just to avoid closing cost?” This is an excellent question and the answer depends on your time horizon. It’s a bit different for every loan, but typically if you plan on selling your house or refinancing your loan within the next four to fives years, it would behoove you to take on a higher rate and avoid closing costs. After four or five years, the savings from the lower rate covers the closing costs you shelled out, so if you are ready to lock in a loan for the long haul, it may be a better idea to get the lowest rate possible and pay closing costs out of pocket. Without accounting for the time value of money, the basic formula to calculate this tipping point in years would be:

Closing Cost / [(Monthly payment with higher rate – Monthly payment with lower rate) * 12]

After you crunch the numbers, if you decide that the no cost refinance might be the way to go, the next step is to figure out your total closing costs. Closing costs can be broken down into three basic categories — lender fees, third party fees, and prepaid expenses. The first set, lender fees, are determined by the mortgage broker and should be disclosed up front. The second group of fees are charged by all the other “hands in the cookie jar.” These fees can vary from state to state, but most mortgage brokers should be able to estimate a reasonable figure. The last set of expenses includes the ongoing costs of owning a home — insurance and taxes. Since the last group is made up of expenses that a homeowner is already paying and will continue to pay whether they refinance or not, I typically do not roll these into the lender credit. Remember, the more fees you roll into the lender credit, the higher the rate will be to get enough “juice” (or yield spread premium) out of the loan.

Once you determine the dollar amount you need to close (with or without prepaids), you can ask that your mortgage broker quote you a rate with $X of lender credit. Then take your quote and the rule of thumb calculations discussed earlier to see if your broker is getting you a good deal or pulling his best snow job.

Ciao,

Frugal Franco