Refinancing

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Wikipedia says: "Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage."

Should you refinance?

Holden Lewis writes:

In 2003, when mortgage rates dropped below 5.5 percent for a time, it was the Year of the Refinance. 2004 through 2006 constituted the Era of the Exotic Mortgage, when home buyers were eager to get any type of loan so they could grab houses before prices were out of reach. 2007 was the Year of Reckoning, when home prices went down and the foreclosure rate went up.

And 2008 will be the Year of the Refinance again, but for different reasons from those that drove the refi boom of 2003. Five years ago, low rates spurred people to refinance. In 2008, homeowners will refi because their adjustable-rate mortgages will hit their reset dates, sending rates skyward. Here are the best mortgage moves to make in 2008:

Know when your ARM resets. It's bad form to get caught by surprise when your adjustable-rate mortgage resets. By definition, the rate on an ARM goes through at least one adjustment. Those adjustments are called resets.
To check on the reset date, pull out your copy of the loan contract. On the first two or three pages there should be a section that details when the rate changes and how the new rate is determined. Look for a little headline that says something like, "Change dates."

Find out what your ARM's rate would be if it were reset this month.
In the section that discloses the rate's change date, there should be an explanation of how the lender will calculate the new rate. The ARM's rate will be based on an index and a margin. The index is an independent interest rate that is widely known -- the yield on the one-year Treasury note, for example, or the six-month London Interbank Offered Rate, or LIBOR.

This website has a good article:

If you've ever asked yourself the question, "Should I refinance my mortgage", the answer is, you should DEFFINETLY look into it. Not only could it give you more to live on month to month, but it could also save you thousands off your loan in the long run.

A recent survey produced some disturbing results on the state of mortgages in the United States. The report showed that more then half of property owners are either paying too much for their mortgages or are locked into mortgages that are clearly unsuitable for their needs, income level or financial goals.

"Should I refinance my mortgage" is clearly a questions more americans should be asking themselves. Research also indicates that the average percentage of some ones income that goes to mortgage repayments has risen 12.6% from ten years ago. That's not leaving today's property owners much to live on. If you don't relate to these circumstances, there are plenty of other reasons why refinancing could still be in your best interest.

Here's some advice to a homeowner desperate to escape foreclosure:

First, you may have heard about the interest reset relief program that is starting up as of Jan. 1, 2008. You must be current on your mortgage (which you are) and you must have less than 3 percent equity in your property (which it sounds like you might have). However, you must have a loan that will have an interest rate reset starting Jan. 1, 2008. Because your loan has already reset, it's possible you won't qualify for this. Still, it's worth a shot, but you'll have to do the work. Call the federal government's toll-free mortgage crisis help line at (888) 995-HOPE to see if you qualify for assistance. If not, then you have to figure out your next steps. Can you find a way to either bring in more cash (rent out a bedroom in your house?) or reduce expenses until you get through this crisis? I'd hate to see you do a short sale (where you sell the home for less than the loan amount) or a foreclosure (which will stay on your credit history for up to seven years), or even a deed-in-lieu of foreclosure (where the bank accepts the deed in lieu of you paying off the loan). You'd be better off trying to trim your expenses or bring in extra income to put down the flooring you need and wait out the current mortgage crisis. Staying in your home will be the least costly choice, both in terms of cash and your credit. I hope you can find a way to make it happen.

Here's an essay on refinancing as a tool to stop foreclosure:

Is refinancing your loan a good option to stop foreclosure on your home? Sometimes it is the best option for homeowners facing foreclosure. Refinancing your loan can help you stay in your home and possibly create a better financial situation. Additionally, if you have a competent mortgage broker, he or she should be able to set your closing date so that you get to “skip” a mortgage payment. This month of “no mortgage payment” is often exactly what someone needs to get him or herself back on track financially. However, refinancing your loan isn’t always the best solution given your specific situation. Refinancing can be a long and difficult process especially if you are already one or two payments behind on your mortgage.

While you have to pay for an appraisal anytime you refinance your loan, the key in a foreclosure situation is that the loan to value (LTV) requirements be met. Lenders are very strict about only refinancing when a LTV meets their guidelines. If your appraisal does not fall within the LTV guidelines that the lender has set then they will not underwrite your loan. So you might pay for an appraisal ($350-500) and not be able to use it. If you try and refinance with another lender, they most likely will want their own appraisal done, so you can see that appraisal fees can begin to add up very quickly.

Here are some good articles about refinancing:

From the WSJ:

The Bush administration is pushing its plan to help subprime borrowers whose loans are due to reset to higher interest rates next year. But left out of the mix are hundreds of thousands of borrowers with good credit who could face sharp increases in their payments.

These homeowners could be the next wave of trouble for the mortgage industry. They took out what are known as option adjustable-rate mortgages, or option ARMs, which give borrowers a choice about how much to pay back each month. If they choose to make only the minimum payment on a regular basis, their loan balance can actually rise.

That is particularly a problem when home prices are falling. Borrowers who get in too far over their heads may not be able to refinance their loans or sell their houses for enough money to pay the loans back. The result, some economists say, may be another spike in foreclosures.

In a report issued last week, Merrill Lynch economists called option ARMs "ticking time bombs" that will start "ticking louder next year." Merrill estimates that losses on option ARMs could total $100 billion, on top of an estimated $400 billion in losses on subprime and other mortgages.

Here are some key links about refinancing:

Refinancing

Here are some frequently asked questions about refinancing:

Step 1: Should you refinance your mortgage?

There are many situations where home loan refinancing can be a benefit to you. From saving thousands, consolidating debt to tapping into your home equity, refinancing could be the solution to your problems. Read our article Should I Refinance My Mortgage to see if refinancing your home loan is for you. You can also use our Refinance Loan Calculator to see if the numbers add up and it is in your best interest to refinance.

Step 2: Be aware of the dangers of mortgage refinancing

As in any industry there are some bad eggs in the mortgage broker community. These dishonest brokers put their personal profit before your financial well being. To make sure you don't get ripped off make sure you read our article Dangers of Mortgage Refinancing and become aware of the how to avoid this potential pitfall.

Step 3: Learn how to pick the best mortgage broker

To get the best mortgage refinancing deal you need to deal with an honest broker that genuinely has your best interest in mind. These brokers usually follow certain practices when dealing with their customers. Read our article How to Pick the Best Mortgage Broker to find out what these practices are.

Step 4: Understand the different mortgage loan types

Home loans come in many shapes and sizes. Each home loan type serves a different purpose. What loan is best for you depends on your situation, and the reasons why your refinancing your mortgage. Flexibility and having the option to repay your mortgage faster might be more important then having stability of your repayments. Read this list of the most common Refinance Home Loan Types to understand what your options are.

From FannieMae.com:

You've probably heard it often -- another friend or neighbor has refinanced and is enjoying lower monthly mortgage payments. You may have read headlines that talk about mortgage interest rates reaching historical lows. So, you ask, is now the best time to refinance my mortgage? Refinancing is essentially paying off your existing mortgage and taking out a new one. This section discusses the basics of refinancing, such as the reasons for refinancing and the steps involved. It also discusses your financing options. After you understand these basics, a Fannie Mae lender partner can discuss the details further and help you get the refinancing process started. Fannie Mae does not lend money directly to consumers. Instead, we work with mortgage lenders to make sure they have money to lend. Lenders who work with Fannie Mae have a broad array of mortgages to offer consumers.

Why Refinance?

Eligibility

Requirements & Costs

Mortgage Solutions

Additional Information & Contacts