How to Refinance Mortgage Loans

The subprime mortgage crisis contributed to the current economic downturn as foreclosures are at historic levels. Many homeowners are searching for new loans as a way to save their homes. Lenders have been reluctant in making new loans, however, now is probably the time to seek refinance mortgage loans. The current low interest rates provide an opportunity for borrowers who want to lower their monthly mortgage.

Rates for mortgage loans are at historic lows. It’s a great time to lock in an incredible interest rate. A good friend of mine just got a loan for well under 5% interest, with a fixed rate.

Looking for a good mortgage rate requires effort and work by the homeowner/borrower. Average loan rate for 30-year fixed loans are around 6% nationally. This means that on every $1,000 you borrow, your loan cost is $60. 1%, equal to 100 points, is the same as $10 for every $1,000 borrowed. A reduction of 1% on a $500,000 mortgage could mean an extra $417 a month.

Your FICO credit score will determine whether you qualify for refinancing. The FICO was developed by the Fair Isaac Corporation and measures if a person is creditworthy. Lenders look at FICO scores 620 or higher, from a range of 300 - 850. You can request your score from any of the credit monitoring services or online. The law permits one free credit score request per year. FICO is the one you want and is used by lenders over the more commonly referenced consumer credit scores. How important is the FICO score? Lenders charge an average rate of 4.77% on a 30-year loan for FICOs between 720 - 850. An average rate of 6.58% is charged for FICOs between 620 - 674. That translates in a $18.12 per $1,000 borrowed difference.

If you have a FICO score that is not that great, I would take the time required to improve it. This will save you a ton of money over the life of your mortgage loan.

After checking your FICO score, check around with various lenders to determine if refinancing is available. Try to negotiate terms with the lender, especially if you have been a good borrower. Shopping around for rates between different lenders provides for competition and better terms for you.

The Recover Act signed into law by President Obama in 2009 gives the Federal government a way to assist homeowners. The Department of Housing and Urban Development (HUD), offers various mortgage assistance programs including refinancing. HUD operates through the Federal Housing Authority and in partnership with Fannie Mae and Freddie Mac to help homeowners stay in their homes and avoid foreclosure. There is more than 4.8 billion dollars alone available through HUD to provide this assistance.

It can be a challenge finding opportunities for refinancing in these tough economic times. Doing your homework, ask appropriate questions make plans to ease the process. Following these steps may pay off in the long run and lower your monthly mortgage bill.


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