Mortgages 101: What You Need to Know

So you’re ready to buy a house, or refinance your existing one, and you just need to know what to do. Well, don’t worry friends we’ll take you through the process step-by-step. Since interest rates are low right now many homeowners are looking to refinance their mortgages during this time. It is also a good idea to consider whether or not a refinance of your mortgage is a good sound decision and makes financial sense.

Mortgage interest rates are one of the first things that you will want to consider, however this is just a small part of the grand scheme of things. Now, you’ve decided to find out if the refinancing plan is something that you want to do, and so you’ll need to know the different types of mortgage loan refinancing and the costs that come with them.

A refinance loan is when you, the individual, are looking to borrow money against the original loan of your house and put it towards home improvements or a previously refinanced loan. In general, even if you have a fixed-rate mortgage or a home equity loan, you can still find a way to refinance your original mortgage loan. The first thing that we want to do is take a look at the five different mortgage loan types for you to choose from.

The Federal Housing Administration (FHA) was created in 1965 to ensure loans. This type of loan isn’t guaranteed, yet when a buyer puts less than 20% down on a home, the overall risk to lenders is not as great. What about the interest only mortgage? These are classified as loans by a Realtor where you would just make a payment on the interest of the loan and therefore not on the principle of the mortgage.

When we take a look at the adjustable rate mortgage loans (ARM), we come to find out that there are three different options for us. The first one is the 2/1 ARM loan — and in this loan your payments are fixed for two years and then adjusted for the remaining 28 years. Our next type of ARM loan is classified as a 3/1 loan — and this one has your payments fixed for three years with an adjustment for the remaining 27 years. Our final type of ARM loan is known as the 5/1 — and in this cost-saving type of loan, your payments are fixed for five years with the adjustment being made for the remaining 25 years. Similarly, the Option ARM loan allows the borrower to have the choice of three different payment plans each and every month.

You can choose a fully indexed version, which is interest only or even a bare minimum payment. Our final mortgage loan type is called the reverse mortgage. This type of loan allows a homeowner to utilize the equity that they have in their house. The lender makes payments to the borrower in one of three fashions; monthly payments while you are still occupying the house, a monetary lump sum made to you, or strategic cash flow advances through a line of credit. Whichever route you decide to go, just be aware that lenders are in the business of making money, and so you’ll need to keep your wits about you.

What about cost when it comes to a refinance loan? A Good Faith Estimate (GFE) is something that you should acquire to avoid any rate changes when you close the deal. In addition, search for the type of bank that will offer you a true no-cost loan from a lender, and thus, prevent getting dinged with all of those hidden fees. Speaking of the fees (and hidden fees), I want to provide you with a list of the costs that you may be required to pay for and it can be extensive: the administrative costs — your application, processing of application, document preparation, credit report, notary, the title policy, an appraisal, e-mail documentation, and of course the delivery and courier charges which may be accrued; in addition, you have the loan discount points and loan origination, inspection, appraisal, escrow fee, recording and tax services.

What kind of time line do you want to refinance your mortgage home loan? If time is on your side and you don’t need to refinance right away, then you can wait for a lower interest rate. During this waiting period, it is in your best interest to get pre-qualified. Having this option allows you to lock in a lower interest rate and therefore reduce your costs. On the other hand, if you’re looking to refinance in a quicker fashion, ensure that the folks you’re dealing with have the expertise in this process.

In conclusion, I’d like to leave you with this thought of advice; because rates are fluctuating on a continual basis, and if you’re still uncertain about things, then seek an experienced refinance professional who knows the ins and outs of refinancing. They will also have historical data that is relevant and available for both of you to consult about.