Refinancing applications at 15-month high

NEW YORK (CNNMoney.com) -- Applications for mortgage refinancing hit a 15-month high last week as interest rates remained near historic lows, a mortgage bankers' group said Wednesday.

The refinance index surged 17.1% in the week ended Aug. 13, compared to the prior week, the Mortgage Bankers Association said in a weekly report. As a result, the association's refinance index reached its highest point since the week ended May 15, 2009.

EmailPrintComment
The association credited interest rates close to historic lows for the rush to refinance. The average rate for a 30-year mortgage is about 4.5%, according to Freddie Mac, compared to about 5.2% one year ago, or 6.5% two years ago.

So someone who bought a house two years ago could shave two percentage points off their rate by refinancing. On a $200,000 mortgage, a home owner with a 6.5% loan pays $1,264 a month. At a 4.5% refinance rate, they would pay $1,013, saving $251 per month.

Applications for new purchase mortgages were down 3.4% in the latest week. The surge in refinancing requests pushed the association's composite index up 13%.
Read More...

Refinancing for underwater borrowers

Mortgage rates dropped again this week, but refinance applications also declined. One bright spot that may change the refinance picture for homeowners is that the long-awaited revised version of the Home Affordable Refinance Program (known as HARP 2.0) should finally get off the ground this month.

Homeowners who owe more on their mortgage than the value of their home and who meet other qualifications of the HARP program should reach out to lenders, who should be receiving underwriting software from Fannie Mae and Freddie Mac later this month.

According to Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association (MBA), “HARP volume continued to grow as a share of total refinance volume, reaching roughly 30 percent of refinance activity in the last two weeks. Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.”


Once the new software is available, lenders will be able to approve loans for more than 125 percent loan-to-value. Lenders can set their individual guidelines for how much they are willing to refinance above the home value, but they also have the option of using an automatic system instead of an appraisal to establish home value.

According to CoreLogic, 27.8 percent of all homes with a mortgage are either underwater or have less than five percent equity.

Estimate your equity
If you are considering a home refinance and are underwater, you may want to try one of two new mortgage calculators on the HSH.com website. These “KnowEquity” calculators help you determine how long it will take before you are no longer underwater and what it will take to have positive equity by a specific date. You can find out what a combination of mortgage amortization, loan prepayment and price appreciation can do. That calculation can also help you decide if refinancing under HARP or another program is worthwhile.

Refinancing rates

Refinancing applications declined for the fourth consecutive week during the week ending March 9, according to the MBA, decreasing by 4.1 percent. According to HSH.com, mortgage rates dipped to 4.01 percent for a 30-year fixed rate home loan during the week from March 7 to March 13. Five-year adjustable rate mortgage (ARM) rates dropped to a record low of 2.92 percent. An ARM can be a good option for borrowers who intend to sell their home or pay off their mortgage in full before the rate resets.

Contact your lender and other lenders for details about the HARP program.
Read More...

Question About Car Refinancing

Dear Dr. Don,
How can I refinance my car loan? I currently have a loan with a credit company, but was wondering where I would start to get a better rate.
Matthew Motorsports

Dear Matthew,
The first step is to review your current loan documents. You're looking to make sure that there aren't any prepayment penalties, and that you don't have a loan where interest is calculated based on "The Rule of 78s."

With a loan using this rule, the lender typically collects three-quarters of a loan's interest in the first half of the loan term. Bankrate can help you determine how the interest on your loan is computed. The good news is that most auto loans today don't use this rule.


Refinancing can also mean moving from new car rates to a higher interest rate for used cars. If you're only a few months in on a loan the lender may give you the new-car rate. Otherwise you're going to pay about half a percent more for used-car financing.

- advertisement -

You can shop rates on Bankrate. Financial institutions can and will offer more variety than the categories tracked on Bankrate, but the shop-rates feature gives you an idea which lenders are competitive in your market.

Loan and title fees can eat into your expected savings. Ask the lender for a breakdown of these charges when shopping for your loan.

Try using Bankrate's Should you refinance your mortgage? calculator to estimate the savings when you refinance.

Find out your payoff balance by contacting your lender. Enter the current and new loan terms. Then on the cost side enter 0 for the number of points, input any loan and title fees and put zeros in the other cost columns. The calculator will show your monthly savings and the number of months that it will take to earn back your loan costs.

You can also use Bankrate's auto loan calculator to compare the new payment to your current payment.
Read More...

Questions & Answers on Home Loan Refinancing

Last week's column urged us all to examine our current home loan to see if it would be beneficial to refinance. Here are some questions that frequently arise whenever refinancing is the subject:

Q: I have always heard that refinancing isn't a good idea unless you can drop your interest rate by at least two percentage points. Is that true?
A: Like many rules of thumb, it can be true, but not always.
The best way to decide on refinancing is to talk with a mortgage lender and let them explain the products they have available and how they can save you money. Short of that, here is my quick and dirty analysis:

1. Determine how much it will cost you to refinance. Typically, closing costs are in the range of 2.5 percent of the new loan amount, but sometimes less, depending on the rate you accept. Talk to your lender.
2. Determine the annual savings in interest rate if you refinance. Multiply your loan balance by that amount to determine your annual dollar savings.
3. Then multiply that amount by the number of years you expect to remain in ownership of that property. That is your expected savings amount. If the expected savings substantially exceeds the cost of refinancing, then it is likely worthwhile to proceed. If not, you can seek to lower your closing costs by accepting a slightly higher interest rate.

Q: How can a lender afford to offer a "zero closing cost" refinance program? Who actually pays for the expenses?
A: If the closing costs are below about 2.5 percent of the loan, then the lender is absorbing the costs internally. In exchange, you will be offered a slightly higher interest rate, which the lender can sell for a slight premium after closing.
In other words, you are actually paying for your closing in the rate you accept.

Q: My interest rate is high at 8 percent, but I only have 9 years left before my loan pays out. Should I consider refinancing, and if so, won't it cost me a lot more in interest over the extended payback period?
A: Yes, you should consider refinancing, regardless of the time period left on your current loan. It is important to remember that almost all loans today may be repaid in whole or in part at any time. That means you can shorten the length of your payback period by making larger principal payments if you choose. So you could refinance from 8 percent down to less than 6, then increase your monthly principal payments to cause the loan to payoff in 9 years if you wish. You'll save money with each payment, and the loan will still payout on schedule. And if you simply kept the payment amount where it is today, your new loan will pay out in less than 9 years.

Q: Would it benefit me to get a 15 year loan instead of a 30 year loan?
A: Typically, the shorter the term of a home loan, the lower the interest rate. But as rates approach zero, a compression occurs in the rate differential, so that there is almost no difference in the rates for these two loan programs. In fact, I recently saw where the same lender was offering a slightly lower rate for the 30 year program than the 15 year version. While that makes no sense, it underscores the importance of shopping around to find the best deal.

Q: What if I just refinanced six months ago. Is it OK to do it again now that rates are lower, or do I have to wait for a full year?
A: Lenders claim they lose money if a loan pays out in less than a couple of years. But few borrowers in today's market would accept a loan that carried prepayment penalties.
So as long as your current loan carries no prepayment penalties, there is no limit on the number of times you can refinance.

Q: I heard on the news that the current credit crunch has made it almost impossible to borrow money for a home refinance. Is this application just a waste of my time?
A: Not at all. For well qualified borrowers with good credit there is no shortage of loans whatsoever. Lenders are relying on your credit score more heavily as an indicator of your creditworthiness, so it's a good idea to pull your report and score before you begin rate shopping.

Q: On a refinance, can I just apply to lower the rate and skip the appraisal part?
A: While some lenders do offer a streamlined refinance program with lesser requirements, most refinance loans require full documentation in order to get the best rate and terms. That means a full appraisal as well.

Q: Is it safe to deal with internet lenders? Can I save money or get a better rate over the world wide web?
A: Call me old fashioned, but when it comes to borrowing this much money, I want someone that I can sit down with and talk to face to face. I have tried numerous times to borrow money over the internet, and have been disappointed in the past.

Read More...