Ways to Renegotiate Your Mortgage

If you are like many Americans struggling to make your monthly mortgage payment, you are not alone.  While the current economy has many struggling, the good news is that banks are more likely now to work with you than ever before.

Because banks have had to foreclose on so many homeowners, they would rather negotiate with you than have another foreclosure where they will likely lose money.  Banks want to get paid, and they now understand that the best way to get their money is to work with you, the borrower.

What You Need Before You Begin to Renegotiate

If you would like to renegotiate your mortgage, you will need several documents to prove that you are having a hard time making your payments.  You’ll want to round up your credit card statements, loan statements, unemployment information (if applicable) or your last paycheck stub, your last two years’ tax returns, and your checking and saving information as well as possibly other investments you have.

Ways to Renegotiate Your Mortgage

There are two main ways you can renegotiate your mortgage.  Which way you chose depends on several variables.

1.  Work with the lender.  Call the lender and honestly tell them that you are having a hard time making your monthly mortgage payment.  You will need to also tell them why you are having trouble, whether that be because of job loss, an injury or illness or another reason.

Ideally, the best time to work with the lender is before you fall behind on your payments.  This was not traditionally the case, but times have changed, and the lender wants to hear from you and work with you as soon as possible.

2.  Consider refinancing.  If you have more than 10% equity in your home and a credit score of 720 or higher, you may be a good candidate for a refinance.  Refinancing can lock you into a lower interest rate and give you a lower monthly payment that you will be able to afford.

While you may initially work with your own lender on a refinance, that is not your only option.  You can contact a mortgage broker who can help you find the best offers, or you can look around yourself and compare rates.  If you belong to a credit union, don’t forget that credit unions often offer lower rates than banks do.

In addition, consider changing the terms of your loan.  If you have a fixed rate mortgage, a 5 year adjustable rate mortgage may give you some breathing room with a lower interest rate and lower monthly payment.  This alternative is especially attractive if you plan to move within 5 years.

If you are having trouble making your mortgage payment, don’t despair.  You are certainly not the only one who has been in this situation, and you will likely find your lender willing to work with you.  Even if your lender isn’t, there are likely other lenders who will work with you and be glad to get your business.  Remember, in general renegotiating your existing mortgage is easier than getting a new mortgage.

source: everythingfinanceblog.com

Why Home Refinancing Boom Is Different This Time

CNBC) — U.S. home owners are refinancing their mortgages at the fastest clip since 2005, but the difference now is they are putting cash in, not taking it out.

At the going rate, 25 percent of all first-lien U.S. mortgages will be refinanced this year, according to LPS Applied Analytics. That represents about $7.1 billion —just through June of this year — in savings on monthly payments, according to economists at Freddie Mac, who ran the numbers for this report.

Seven years ago, refinancing wasn’t about saving on monthly payments; it was about pulling cash out. Homeowners extracted close to a trillion dollars collectively in home equity in 2005 and largely put it toward home remodeling, swimming pools, cars, vacations and retail spending.

Today, 81 percent of homeowners refinancing their first-lien mortgages either kept the same loan amount or lowered their principal balance by paying-in additional money at closing, according to Freddie Mac.

“The net dollars of home equity converted to cash as part of a refinance, adjusted for consumer-price inflation, was at the lowest level in 17 years,” the Freddie report notes. Rather than build debt, they reduced it.

Refinances are surging this year, not just because interest rates are hitting new record lows but because the government is making severely underwater loans eligible for refinance.

Read full article from CNBC

source:  thenichereport.com

Refinance your mortgage without extending the term

OBVIOUSLY, the simplest way to refinance without extending the term is to select a new mortgage with a shorter term. How do you refinance your 30 year loan after paying for a few years to another 30 years loan without extending the terms is the questions. This is what banks don’t really want you to know if order for you to keep paying your mortgage sometimes never really paying it off. Much the best method is to refinance at the same term or a shorted term, but increase the payment by the amount required to amortize over the period you wish. Let me explain:

“I want to refinance my 5.25% 30-year mortgage, taken out in 2006, without starting the 30-year amortization period all over again. I read recently that the best way to do this is to borrow an amount equal to the original balance, then immediately prepay an amount equal to the difference between the original balance and the current balance. Do you endorse this?”

No, there are better ways to accomplish your objective.

Assume you took out a $250,000 fixed-rate mortgage in 2006 for 30 years at 5.25%. Your monthly mortgage payment was $1380.51. If you made no extra payments, your balance 5 years later would be $230,373.72. You now have an opportunity to refinance at 4.25% on a new 30-year loan, but you want to pay off in 25 years, as you would have if you hadn’t refinanced. There are 2 ways to do this.

Shorten the term

The simplest way is to make the term on the new loan 25 years instead of 30. Then your new payment will be $1354.35, which would still be below your current payment. The rate on 25-year loans is usually the same as that on the 30, but 20-year terms carry lower rates..

Increase the payment

A much better alternative is to refinance the current balance for 30 years, but increase the payment by the exact amount you were previously paying $ 1380.51, instead of paying $1136.38 which will take you for another 30 year full interest payment.

The beauty of this approach is that it is exact. If you are able to continue the $ 1380.51 payment, that means you are actually reducing your principal balance from day 1 by $ 244.00 and that is all applied towards your principal reduction therefore will translate to your term reduction.. Now your savings, if this is applied you would have saved 8 years and 9 months of interest payments totaling $ 58,416.52 and actually reducing the terms by 3 years and 9 months. If you would have stood still now and do nothing you wont enjoy the savings, even if you sell or refinance again, your balance would have been much lower due to your principal reduction options.

Of course, the extra payment is not obligatory, which can be viewed as a drawback or an advantage. It is a drawback if you lack the discipline to pay more than you are legally obliged to pay. It is an advantage if you have the discipline, and value the flexibility of being able to skip the additional payment in a pinch.

Of course if your objective is to reduce your monthly mortgage payments, based on this example a $244. decrease in your monthly payments translate to about $3,000 a year in savings. Which compounded will add up to a nice sum of cash you can use to pay a car or enjoy a yearly paid vacation. So, there is more benefits to being able to refinance your payment.

My best advice is to be able to refinance without any out of pocket loan fees and no closing cost added to your loan balance.

If you are refinancing again, remind your lender that you don’t want to pay closing cost and also you want a no points no fees loan. Don’t get fooled by just looking at the rates being offered, remember to look at the overall picture. A “No Cost” loan might be worth while for you to do without having to pay cost to line up pockets of your lenders.

Paying closing cost will take years to break even on the payment adjustments, if you happen to refinance or sell within less than the break even period, you would have lost that money.

source: asianjournal.com

The One Housing Solution Left: Mass Mortgage Refinancing

MORE than four million Americans have lost their homes since the housing bubble began bursting six years ago. An additional 3.5 million homeowners are in the foreclosure process or are so delinquent on payments that they will be soon. With 13.5 million homeowners underwater — they owe more than their home is now worth — the odds are high that many millions more will lose their homes.

Housing remains the biggest impediment to economic recovery, yet Washington seems paralyzed. While the Obama administration’s housing policies have fallen short, Mitt Romney hasn’t offered any meaningful new proposals to aid distressed or underwater homeowners.

Late last month, the top regulator overseeing Fannie Mae and Freddie Mac blocked a plan backed by the Obama administration to let the companies forgive some of the mortgage debt owed by stressed homeowners. While half a million homeowners could be helped with a principal writedown, the regulator, Edward J. DeMarco, argued (we believe incorrectly) that helping some homeowners might cause others who are paying on their loans to stop so that they also could get their mortgages reduced.

With principal writedown no longer an option, the government needs to find a new way to facilitate mass mortgage refinancings. With rates at record lows, refinancing would allow homeowners to significantly reduce their monthly payments, freeing up money to spend on other things. A mass refinancing program would work like a potent tax cut.

Refinancing would also significantly reduce the chance of default for underwater homeowners. With fewer losses from past loans burdening their balance sheets, lenders could make more new loans, and communities plagued by mass foreclosures might see relief from blight.

Well over half of all American homeowners with mortgages are paying rates that would appear to make them excellent candidates to refinance. Many of those with stable jobs, good credit scores and even a modest amount of home equity have already done so, taking out 30-year loans at rates around 3.5 percent, some of the lowest rates since the 1950s. But many others can’t refinance because the collapse in house prices has wiped out their home equity.

Senator Jeff Merkley, an Oregon Democrat, has proposed a remedy. Under his plan, called Rebuilding American Homeownership, underwater homeowners who are current on their payments and meet other requirements would have the option to refinance to either lower their monthly payments or pay down their loans and rebuild equity.

A government-financed trust would be used to buy the mortgages of homeowners who had refinanced at an interest rate that was about 2 percentage points more than the record-low Treasury rates at which the government borrows. This would generate enough interest income to cover the costs of any defaults, administration of the trust and other expenses. Families would have three years to refinance; after that, the trust would stop buying loans and eventually wind itself down as homeowners repaid their loans.

Homeowners would see lower mortgage payments and rebuild equity more quickly. Taxpayers would get their money back, with interest, and would gain further as a stronger economy lifted tax revenues. Banks and other mortgage investors would get potentially troubled loans off their books. Some banks won’t like losing the large amounts of interest income they are earning on their current mortgages, but if the refinancing market were working properly these loans would have been refinanced long ago.

If the program was very successful, we envisage that two million outstanding loans could be placed in a Rebuilding American Homeownership trust at its peak. If the average mortgage balance was $150,000, then at the peak there would be $300 billion outstanding.

The federal government could finance the plan directly, through the Federal Housing Administration, or indirectly, through the Federal Home Loan Banks, which offer government-backed credit. Or the Federal Reserve could underwrite the plan; the central bank’s chairman, Ben S. Bernanke, recently talked about the Fed’s doing something akin to the Bank of England’s new Funding for Lending program, which offers incentives to banks to increase lending to households and nonfinancial businesses.

Opponents of additional borrowing or Fed lending will say that a program like this is an unacceptable risk, but the greater risk is to do nothing and let the housing market continue to hold back the economy.

Mr. Merkley’s plan resembles the Obama administration’s Home Affordable Refinance Plan, or HARP, which was designed to help underwater homeowners refinance loans backed by Fannie and Freddie. It has made possible 1.4 million refinancings, far fewer than the goal set in 2009 of 3 million to 4 million. The administration has made some improvements to HARP and proposed others. But the Merkley plan has the potential to go further, reaching the 20 million households with mortgages that aren’t backed by Fannie or Freddie.

The Merkley plan has a successful precedent in the Home Owners’ Loan Corporation, established in 1933. It swept more than a million Americans out of foreclosure and into the long-term, stable mortgages that would become the hallmark of the middle class during the 1950s and ’60s. It’s time to revive this idea.

Since the Great Recession began almost five years ago, housing has been at the heart of our economic woes. If we do nothing, the problem will eventually resolve itself, but only with significant pain and a long wait. Mr. Merkley’s plan would speed the healing.

source: nytimes.com