MORTGAGE refinance is the availing of a new mortgage loan to prematurely settle an existing mortgage account and then continuing to pay back the new loan in monthly installments.
The property used as collateral for both the loans is the same. The mortgage loan that was used to purchase the property is called ‘purchase mortgage’ and the one to refinance it is ‘mortgage refinance’.
In terms of the types of loans available, interest rates, payment terms, procedures and formalities, there is hardly a difference between a purchase mortgage loan and a mortgage refinance loan.
Mortgage Brokers in Iowa
Therefore, if you have a mortgaged property anywhere in the state of Iowa, you must be having basic knowledge about the types of loans available in the mortgage market of your state.
The same types are applicable to mortgage refinance as well. So, this article will not get into the types of mortgage refinance available and will, instead, look at the possible pitfalls in the refinance market.
Mortgage refinance is a tempting option. But, as with any temptation, the end-result may not be relishing – and it may be too late by the time you realize your mistake.
So, what are the mistakes you can make in the context of mortgage refinance, which you must not make? Well, here we go:
- Just forget the idea that a low interest rate is always a justification for mortgage refinance. It may be a justification, but there is equal probability that is not. Some, though not all, mortgage refinance brokers, in their quest for more and more customers, may somehow convince you that refinance your existing mortgage is the ideal thing to do. They may be right, but don’t get carried away.
- As with purchase mortgage, interest is only one component of the total cost of a loan. In mortgage refinance however, there is the additional cost of penalty you will have to pay for premature termination of your existing mortgage loan. This is a condition you had accepted while taking the purchase mortgage.
- The points you may have to pay for the refinance usually has to be paid in one lump sum in Iowa, unlike the staggered payments that apply to purchase mortgage. Points, as you might recall, are an upfront payment you may have to make to reduce the effective interest rate on your loan. A point equates with 1% of the loan amount.
- You have to have your property re-assessed for the refinance and therefore you have to pay for the property evaluation. Yes, you had to pay for that when you took the purchase mortgage loan too; but we are emphasizing it here because many mortgage brokers in Iowa have encountered customers who didn’t understand why re-evaluation is necessary for the second time. In fact, property re-evaluation is not only necessary but also desirable to determine the current market value (also called ‘equity’) of your mortgaged home; if the current equity is higher, you become eligible for a cash-out loan subject to your compliance with other criteria, particularly your credit rating.
- Though mortgage refinance, in most cases, works out cheaper than a second mortgage, don’t overlook the latter option. It may be that, in some cases, a second mortgage makes more economic sense to the borrower.
- No one type of loan is bets for all. Needs vary from person to person, and while one type of loan may be excellent for one person may be bad for anther person depending on their respective financial situations. The most popular mortgage refinance type in Iowa, however, is the 15-to-30 year adjustable loan type.
Of course, knowledge of the above pitfalls in itself is a fundamental precaution. But you should also have knowledge of what the market can offer you after taking into account your specifics. To know this, you must use online calculators available on the websites of mortgage lenders and brokers.
Some of these websites are www.erate.com, www.mortgageloan.com, www.bankrate.com, and www.interest.com. There are of course many others on the Internet, which you can identify through a good web directory or search engine such as www.yahoo.com or www.google.com.
The online calculators ask you for specific details including your personal credit profile, the amount of your original mortgage loan remaining to be paid, the amount of refinance loan you want, the number of years you want to keep your ownership of the house, the points you are willing to pay, the exact location (or ZIP) of your house, and so on.
You also have to choose the type of loan you want: fixed-rate, adjustable rate, interest-only, cash-out, jumbo (remember jumbo loans come at a higher interest rate than the others and are not popular in Iowa), and so on.
It is recommended that you try out all the loan types (it takes a few seconds for each calculation and is free), so that you are equipped with reasonably reliable information on your eligibilities. Note however that online calculators provide only approximate details.
Yet, these details serve as good reference for your subsequent talks with actual brokers or lenders provided the details you fed into the online calculator were correct, particularly your credit profile.
Finally, when you get down to talking to lenders / brokers, use your online findings as your private reference and don’t hesitate to question the lender / broker in case of stark disparities. Also, don’t talk to just one firms; talk to at least three or four parties (may be, two lenders and two brokers) and compare their offers.
You don’t have to pay any lender or broker until you have formally accepted an offer, which is the closure stage of your refinance loan. Broker’s commission in Iowa varies between 1% and 10% of the loan amount, with the commission being less if your credit profile is high, and the other way round.