In our previous articles we learnt how to work out the costs of a refinance mortgage. Now you have this information you are ready to work out if a refinance is good news for you. You can do this by hand, but I recommend you use an online refinance calculator. Bankrate, Lending Tree or Realtor all offer free refinance calculators.
The calculators above will tell you how many months (or years) you will have to stick with your new refinanced mortgage before you start saving money. This is done by working out the monthly savings in interest payments you get by having a lower interest rate and calculating how many months it will take for those savings to pay off your closing costs and prepayment penalty fees.
For instance, if you have a:
- 20-year mortgage
- Monthly payment of $1,118.36
- a balance of $150,000
- a 6.5 percent interest rate
- Prepayment penalty 2 percent.
and you refinance it for
- a 20-year mortgage
- With a 5.5 interest rate
- $1,5000 (1 percent) in closing costs
- Monthly payment of $1,031.83
You will have to stay in your home for 1 year and 4 months to start saving money. This should help you decide if the mortgage is good for you. If you are planning to sell in the next two years, refinancing your mortgage is not worth the hassle. However, if you are planning to live in your home for the foreseeable future you could be on the road to substantial savings. In our previous example you were saving around $86 a month, which in a 20-year mortgage, can save you over $20,000. That, I am sure you will agree, is worth the effort of filling in a few forms and spending a few hours online or at the bank.
Other factors to consider when choosing a refinance mortgage are the term of the new loan and the type of interest rate. Sometimes homeowners will refinance their home to pay their mortgage off earlier. This can provide huge savings on a mortgage. The catch is your monthly payments will not drop by much or could even be higher, but the overall savings would be much greater.
Another popular term to change when you refinance is your interest rate type. There are three main types of interest rate: fixed-interest rates, variable-interest rates and adjustable rate mortgages (ARM).
Fixed rate mortgages have the same interest rate throughout the life of your mortgage. They are great for people who expect to have a similar income for the foreseeable future or who like to play it safe and know how much their mortgage payments will be every month. Variable-rate loans begin with lower interest rates but the rates can rise or drop throughout the life of the loan.
The middle ground between fixed-rate and variable-rate loans is an ARM. ARMs behave like a fixed rate for a set period (anything from 6 months to 10 years) and then adjust to a variable rate. Of course, there are all kind of variations on these three models you can choose from.
So, before you run to the latest “great deal” in mortgage refinancing take the time to do the math. This will help you check if there are savings in it for you and if they are worth the effort of changing lenders.

The big question we are going to answer in this article is: “How can you work out if a mortgage refinance makes sense for you?” In the previous article of this series we compared refinancing a mortgage with changing your cell phone provider. Just as with a cell phone contract, there are many factors that make a good mortgage.
The key to deciding if a mortgage refinance is all about the numbers. So get your calculator, or better still, go to an online refinance calculator and lets starting crunching numbers.
Let’s start with the information you need from your current mortgage. The first number you need is your current monthly payment. You can find that in your last mortgage statement. You also need the balance left on your current mortgage. That should also be on your mortgage statement. If it isn’t check your account online or write to your lender and ask for a balance statement. Also, check how many years you have left to pay off your mortgage and your current interest rate.
So by now you should have:
- Your current monthly payments
- Your current mortgage balance
- Numbers of years left on your current loan
- Your current interest rate
- Prepayment penalties
To decide if refinancing is a good idea for you, you need to have mortgage refinances to compare your current loan with. So go shopping for the best refinance terms you can find (Zillow and Bankrate are great websites to get started). Once you have found a few candidates for your next refinance write down this information.
- New refinance loan interest rate
- New loan term (that is the number of years the mortgage will last for)
- Closing costs
Getting your lender to give you a straight answer on your closing costs can sometimes be tricky. Closing costs include your application fee, attorney’s fee, title search, appraisal fee, local taxes and transfer fees, credit check fee, inspections, document preparation fee, your lender’s attorney fee and any points you pay toward lowering your refinance loan’s interest rate.
Now we have the raw data, let’s learn how to use it in our decision making.

Nevada residents have state, federal and charitable organizations that provide free advice and mortgage aid. This includes the Nevada Foreclosure Prevention Task (foreclosurehelp.nv.gov), the Home Ownership Preservation Foundation (Call 888-995-HOPE) or the Housing and Urban Development Department (HUD.gov).

The main resource these organizations can provide is quality information so you can educate yourself and negotiate a suitable mortgage workout with your mortgage servicer. However, many troubled homeowners struggle to see how talking to a friendly counselor is going to help them save their home and just try to work it out by themselves.  Unfortunately they are wasting a valuable resource that can improve their chances of avoiding foreclosure. Let us look at a few of the ways a housing counselor can help you.

Designing a budget.

The reason you are struggling with your mortgage payments is because your monthly budget is not working. Maybe you have new expenses, or your income has dropped. A good housing counselor will help you write out a new budget that allows you to pay your mortgage, or at least know how much you can put towards a mortgage. This information is very important. You should know what you can afford before you negotiate with your mortgage servicer. This information will also help you decide what kind of mortgage workout would benefit you the most.

Up-to-date Information

Housing counselors have up-to-date information on mortgage aid workouts, services and resources you can apply for. This includes legal, medical and other financial services that can help with other problems besides your late mortgage payments.

Negotiation

Your housing counselor can even call your servicer on your behalf and obtain information from your servicer. You must allow your mortgage servicer in writing by signing an Authorization to Release Information form before they can talk about your situation with a counselor.

Counselors can also help you fill in the information package your servicer sends. This includes guidance writing the hardship letter most Loss Mitigation departments ask for.

As you can see approved housing counselors are valuable resources for struggling homeowners. Call an HUD approved counselor near you and start making choices that can save your home from foreclosure. Visit this article for up-to-date lists of Nevada Housing Counseling Agencies.

Today’s financial situation is difficult for Nevadans, as it is for most residents in the U.S. The drop in home prices and the rise in mortgage payments are just two of the problems Nevadans have to face. Add loss of employment, a sudden disability, a divorce, elderly parents, credit cards and unpaid bills, and you will begin to understand the complexity of the problem Nevada residents face.

These issues can cause homeowners to struggle financially and miss mortgage payments. Unfortunately this can cause Nevadans to lose their homes to foreclosure. However, help is available from State and Federal and charitable institutions.

It is important than when you are at risk of becoming delinquent (another word for late) in your payments you act quickly and contact your servicer (the company you send your monthly payments to) and find a professional (and free) housing counselor. The key is to understand when you are at risk of getting behind in your payments and acting quickly. The sooner you seek help the more likely it is your servicer can find a solution that will allow you to keep your home. Even if can’t afford your mortgage despite any workout there are still alternatives to foreclosure you can negotiate with your servicer and lender.

Nevada is a nonjudicial foreclosure state. This means your lender can start the foreclosure process at any time after you default on your mortgage, and you default on your mortgage as soon as you do no not make your mortgage payment on the date agreed in the mortgage contract.

As soon as you are late in making a mortgage payment your case will go to the Collections Department of your servicer (usually a bank). You can find the due date of your mortgage payments on the monthly statement your servicer sends you. The Collections Department will try to contact you many times to collect your mortgage payment. If after 30 days you still haven’t paid your case, the Collections Department will pass on your case to the Loss Mitigation Department. This is the department you will have to deal with to try to get your mortgage back on track. They have the staff and expertise that can help you find a mortgage workout you can afford.

As soon as they receive your case they will try to contact you, and send you letters asking you to call. Do not ignore them. Always return their calls. Working with them is your only chance at keeping your home.

Before you get to this stage you should be talking to a qualified housing counselor. If you are going through a foreclosure and haven’t spoken with a housing counselor yet, do it now. You can find an updated list of approved housing counselors in Nevada at www.foreclosurehelp.nv.gov, www.hud.gov or by dialing 2-1-1. The list below is accurate as of June 2010 and is provided courtesy of the Nevada Foreclosure Prevention Taskforce. Notice these housing counselors are professionally qualified and free. If your housing counselor asks for payment, especially up-front payments for his or her services report it to HUD at 800-569-4287 and confirm you are dealing with an approved counselor.

List of Certified Housing Counselors in Nevada.

Consumer Credit Counseling Service of Southern Nevada (HUD approved)

Address: 2650 S. Jones Blvd

Las Vegas, Nevada 89146

3100 Mill Street #111

Reno, Nevada 89502

Phone: (800) 451-4505 or (702) 364-0344

Email: cccs@cccsnevada.org

Website: www.cccsnevada.org

Community Services of Nevada (HUD approved)

Address: 3320 Sunrise Avenue, Suite 108

Las Vegas, Nevada 89101

Phone: (702) 307-1710

Fax: (702) 307-1712

Email: mvreb@elvcdc.org

Housing for Nevada (HUD approved)

Address: 285 E. Warm Springs, Suite 100

Las Vegas, Nevada 89119

Phone: (702) 270-0300 or 1-877-649-1335

Fax: (702) 270-2195

Website: www.housingfornevada.org

Neighborhood Housing Services of Southern Nevada (HUD approved)

Address: 1849 Civic Center Drive

North Las Vegas, NV 89030

Phone: (702) 649-0998

Fax: (702) 649-0702

Website: www.nwsn.org

Nevada Fair Housing Center

Address: 3380 W. Sahara Avenue, Suite 150

Las Vegas, Nevada 89102

Phone: (702) 731-6095

Fax: (702) 732-9538

Email: info@nfhc.org

Website: http://www.nfhc.org/

Refinancing you home can be an excellent way of reducing your monthly costs, reduce the interest you pay and payoff your mortgage sooner. It also can be a complete waste of money; where the only ones who benefit are your bank’s shareholders.

Refinancing a home is completely different to modifying a loan, another popular measure with struggling borrowers since the mortgage crisis that began in 2008. While a loan modification varies the terms of a loan by reducing interest rates, extending the loan term or even reducing the loan principal; a mortgage refinance pays off the old loan in full with the money borrowed from a new loan. The new loan can be bought off the same bank or another bank that offers a better deal. Loan modifications are for borrowers that cannot afford to pay their mortgage and are behind in their payments. Mortgage refinancing is for borrowers that can afford their mortgages and are up-to-date with their payments, but want to take advantage of better loan terms.

So, what are the factors that determine if refinancing is a good idea, as opposed to a loan modification, paying off the loan with savings, or just staying as you are?  There are several; we will focus on four: 1) the balance of your mortgage, 2) the interest rate reduction, 3) the cost of refinancing, and 4) the term of the new loan.

Each of these factors will determine if refinancing your mortgage is a good idea or not. Let us look at each factor separately, and learn how to use the information to work out the profitability (or not) of a mortgage refinance. Once we understand the concepts we will need to use a mortgage refinance calculator to decide what a refinance is going to cost us or save us.

Refinancing a loan can save you money if the new loan has lower interest rates, has a shorter loan term, or provides you with better loan terms like a fixed interest rate instead of variable. As mentioned above although refinancing has the potential to save you money it can also be an expensive operation that only benefits the bank. To work out the

1)      The balance of your mortgage.

Refinancing a mortgage only makes sense if you have a large balance on your current mortgage. If you are close to paying off your mortgage the cost of refinancing your loan is likely to outweigh the savings. However, if you are planning to increase your current mortgage balance with the refinance loan to consolidate other loans, buy a yacht or simply top up your income for retirement, it could make financial sense.

2)      The interest rate reduction.

The interest rate reduction is the difference between the old interest rate and the new interest rate. Even a difference of 1% can create huge savings throughout the lifetime of the loan. Interest rates have dropped considerably; if your mortgage is over two years old the chances are you could save a lot if you refinanced your mortgage with the current interest rates.

Continue reading the second section of this article and learn how to calculate if a refinance is worth your time and money.

Deciding if it is a good financial decision to refinance your mortgage is not always straightforward. An enticing reduction in interest rates could make a refinance attractive, but there hidden costs and other factors that could easily outweigh the savings of an interest rate reduction. A great tool to decide if a refinance deal is worth taking is a mortgage refinance calculator. These online calculators allow you to introduce all the terms and details of your old and new refinance mortgage to help you work out the real cost or savings of the refinance.

Before we show you where to find these refinance calculators you need to understand two more elements of smart refinance decision making: the cost of refinancing and the length (or term) of the loan.

Calculating the cost.

Refinancing a loan involves two operations: cancelling the old mortgage and opening a new one. Each operation incurs its own expenses. Many mortgages come with clauses that charge higher interest rates when the balance is paid off early. These are called pre-payment penalties. It is important to work out carefully how much it will cost to pay your mortgage early because the cost can be prohibitive and make the whole operation pointless. Closing a mortgage also involves red tape expenses. The new lender might also require a valuation of the property, mortgage insurance or hefty “opening” costs, which all add up. This is why it is a good idea to start by asking your current lender for a refinance as this will probably reduce the processing costs of the refinance.

Loan Term, the cost of time.

One of the less considered factors of a mortgage is also one of the most important: the length of the loan’s term. Interest is paid on the balance of a mortgage. This interest is paid every month, two weeks, or year depending on the loan. The shorter the term (or length) of a loan the less interest you pay. Let us illustrate. Imagine you ask your boss for a $1,000 loan. He agrees, but asks you to pay a 10% interest every month until you pay him back. If you take one month to pay back the loan will cost you $100. If you take five months the cost will be $500 and so on. The less you take to pay back the loan the less interest you pay. The same occurs with mortgages. We often focus our attention on the monthly cost of the mortgage and forget the overall cost in interest. Therefore if you are refinancing your mortgage try and reduce the length of the mortgage. If your current loan is a 30-year mortgage, try and reduce it to a 20 or 15-year mortgage. This might leave your monthly payments the same or slightly higher, but you will save a lot of money in interest.

To know if you are saving or spending money on a mortgage refinance you need to crunch all the numbers. The links below will take you to mortgage refinance calculators that will help you work out the real cost of your refinance.

If you are struggling to make your mortgage payments and you are a citizen of Illinois there are various federal and state resources you can tap into and find help to avoid losing your home.

Contact Illinois Housing Development Authority.

Their website ihda.org provides basic information on what to do if you are struggling to make your mortgage payments. This is not the best government mortgage help website we have seen – one of its suggestions to avoid foreclosure is to ask your church for help – but it does provide useful contacts that can provide more substantial help. For instance it suggests contacting Illinoislegalaid.org a nonprofit legal aid organization that provides free online legal advice. Their website is excellent and provides useful information.

Housing Counseling.

Illinois has various counseling agencies that provide free advice on default and foreclosure prevention. Make sure the counseling agency you choose is approved by the U.S. Department of Housing and Urban Development (HUD) because some agencies just pose as non-profit organizations. HUD provides an up-to-date list of approved agencies for Illinois.

Legal Aid

Illinois citizens have a number of programs that provide free advice. Besides illinoislegalaid.org, you can try the land of Lincoln Legal Assistance Foundation (lollaf.org) which provides free civil legal services to low-income people and senior citizens. Land of Lincoln Legal Assistance Foundation is not a government agency and provides independent advice for their clients.

Illinois Attorney General

Lisa Madigan, AG for Illinois, provides valuable information on her website. Click here for more information on her website.

The Illinois Department of Human Services

A great resource for troubled homeowners is the Illinois Department of Human Services. It is the lead agency in partnership with the Illinois Housing Development Authority (IHDA), and the Illinois Department of Commerce and Economic Opportunity (DCEO) in providing help to vulnerable residents in Illinois.

According to the Illinois Department of Human Services, Illinois is “the only state to specifically address the needs of the State’s priority populations by setting an aggressive goal  of using up to 40% of its allocated funding for developments that provide affordable and accessible homes for very low income households and persons with disabilities.” If you fall into this category check their website at dhs.state.il.us.

Banking Aid

The final resource we will be looking at to avoid foreclosure in Illinois is the Illinois Office of Banks and Real Estate (obre.state.il.us) which provides comprehensive advice on how to make the best decision when choosing a mortgage. We found the banking tips especially useful for new borrowers that need specific suggestions on how to look for the best mortgage.

Conclusion

If you are going through financial difficulties and your home is at risk be smart; set aside some time to find out what government programs are in place to help you.  The resources to make the most of a bad situation are at your fingertips it is up to you to use them or not.

Seller Financing for Homes

Seller financing for homes is a concept that most people aren’t aware of. It can be the answer to the problem of selling in a slow market with tight credit. More buyers will be attracted to the home with seller financing, so it may sell faster.
Each state has their own real estate laws, so the process of creating a promissory note and mortgage should be handled by a real estate attorney. Since this is a legal agreement, it will be recorded in the property assessor office.

There are several different options to sell a property, with thought given to terms, interest rate, and length of note and mortgage. Selling a property this way gives more flexibility for sellers and buyers. It also has its’ advantages and disadvantages to think about.

Consider the several types of seller financing for homes. Always get a good size down payment and use the home as collateral. A straight all-inclusive mortgage for the entire balance, a land contract, a lease option, or a second mortgage are several creative financial solutions for seller financing.

A straight all inclusive mortgage and note can be good since it will get the property sold faster. It works well when little or no mortgage is on the existing home. Also a higher asking price and interest rate, can be a realized. If the thought of receiving steady monthly payments is attractive, then it is a win-win. Once a promissory note and mortgage are established and there is some seasoning, the owner may sell off the note to an investor. Seasoning means that the buyer has made steady payments for a given time. This makes it more attractive to potential investors.

The disadvantage for this type of financing is a risk that the buyer doesn’t pay, then the seller will have to foreclose and take possession.
The land contract will create an equitable title, but the deed isn’t granted to the buyer until the last payment is made. It would be best to have a short term for this type of arrangement.

The lease-option is a short term arrangement allows the buyer to have some equity as long as he makes payment. The property is leased for a given time and a pre-determined amount is applied to the down payment. It can be very flexible in terms for both parties. If the buyer doesn’t make payments, then the owner will have to evict them and start the selling process over, again.
The most risky type of financing is agreeing to the second or junior mortgage on the property. The owner agrees to hold smaller mortgage for the balance, after the buyer’s lender holds a first on the home. If the buyer defaults, then it’s difficult to get paid after the first mortgage.

Getting a down payment and using the home as collateral is essential, in any case.
Seller financing for homes can be a great option for both parties but weigh the advantages and disadvantages carefully.

Housing Forecast 2010

There is a difficult issue facing buyers as we enter the busy spring real estate market: Should you buy soon, prior to an increase in mortgage rates? Or, should you hold off for a couple of months, when real estate prices are predicted to be considerably lower?

Naturally, any answer could easily be wrong; however, for the first time in recent years, real estate economists have never agreed amongst themselves concerning their short-term, national predictions for the real estate market as they do now.

The most common predictions state that mortgages should climb by the end of March, landing somewhere between 5.5-6% for a 30 year, fixed-rate loan – today, that rate is 5%, on average. Foreclosures are also expected to rise during the summer months, which will flood the real estate market with inexpensive properties, thus decreasing the market prices overall.

Mark Zandi, a chief economist at economy.com, advises that you do not rush into anything – only if you find a property that you are really enthused about. While you might be purchasing the property at a rock-bottom price, you will still get an incredible rate. If you stay with the property, according to Zandi, you will reap the benefits after a few years. This is because property values will have appreciated in a few years.

There are two things that can increase rates, according to some economists. For one, the Federal Reserve is ready to halt the subsidies of mortgages next month, when it is done with a $1.25 trillion earmark for securities which were previously owned by Fannie Mae and Freddie Mac. Many investors had refused to buy into such securities, and as a result, the government bought into them during the market crisis. Most economists predict that investors will come back to buy into the market, but only if the rates are lower to provide them with an incentive to do so.

Many economists also believe that the country is in the early beginnings of recovery, and as a result, rates will increase. Zandi, along with others, predict that rates should not go above 5.5% by December of 2010. If they were to rise beyond that, the government would more than likely continue in their subsidies, in order to protect the real estate market from further damages.

On a different note, Cameron Findlay, of Lending Tree.com, predicts that rates can climb to 6% even without the influence of the federal government. In order to arrive at this assessment, Findlay evaluated the mortgage troubles of national households, and used this as an indicator to determine how fast the states can survive the economic recession.

For example, in New York, an average mortgage payment is a little over $1,300, which amounts to 34% of the household income. With an unemployment rate of 9%, New York is not far behind the national unemployment average of 9.7%.

The ratio of debt to income in Connecticut is much lower – 24% – but the unemployment rate is lower as well, resting around 8.9%. For this reason, people would be in a better condition to buy in Connecticut than in New York.

New Jersey, on the other hand, finds itself very similar to Connecticut, except with the unemployment rate. The debt to income ratio is 26%, while the unemployment rate is 10.1%. In this regard, New Jersey’s housing recovery efforts would lag significantly behind that of New York.

Zandi also says that he believes that real estate prices should decrease by 8% throughout 2010, ending the decrease in December at a 34% lower rate than they were in the spring of 2006. Prices will rise only after the foreclosures begin to decrease. According to Zandi, it will be a while – years – before you see a normal increase in real estate prices.

Government Refinance Programs for Retirees

Retirees, that are homeowners, are struggling to make their mortgage payments because they are living on a smaller income. The Obama administration has formulated a financial stability plan, to get the economy back on track and help improve the state of the housing market. The Home Affordable Refinance program will give up to 4 million homeowners, including retirees, a chance to refinance their mortgage to make monthly payments more affordable.

The Hope for Homeowners Program was created by the government as a option for homeowners, who are at risk of foreclosing or cannot afford their current mortgage payments. Retirees that are facing hardships can refinance their mortgage into an affordable loan. Government backed refinance loans are a good option for retirees with a credit score below 700 and they don’t have much equity in their homes.
There are two loans offered by the government under the Home Affordable Program. They are the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP). These programs offers incentives for lenders to reduce mortgages so they are more affordable to homeowners.
The Home Loan Modification program is an excellent resource for retirees that owes more money on their home then the current market value. Loan modifications reduces monthly payment by lowering the interest rates or extending the loan. To qualify for a modification loan, retirees must document proof of income and financial hardship. The home must be their primary residence. The Homeowners refinance Loan Program is available to retirees with an existing Fannie Mae loan. The loan is offered to responsible homeowners and reduces their monthly payments by lowering interest rates on the loan. To qualify, homeowners should be current on their mortgage payments.
These two loan programs was implemented by the Obama administration to help homeowners stay in their homes and to fix the current state of the housing market. These programs are a temporary solution offered by the government. These two government backed programs expires on June 10, 2010.
The FHA Streamline Refinance Loan is another option offered by the government. Retirees can utilize this loan to reduce their monthly payments by a getting lower interest rates. A streamline loan is an easy and quick procedure. There is usually no appraisal and credit check. This reduces the paperwork needed to process the loan. The original loan must be an FHA loan and you must be in gong standing with your lender.
Now is a good time to take for retirees to advantage of government refinance loans, before time to apply expires. Information on refinance loans for retirees can be found on the Department of Housing and Development website, under the category, information for senior citizens.