How to Save Money on Your Mortgage Even If You Can’t Refinance

One of the simplest ways to save money on your mortgage is by lowering your interest rate.

This is generally accomplished via a rate and term refinance, where the loan amount stays the same, but the interest rate and loan term are changed.

For example, if you’re currently stuck with a 6% interest rate on your 30-year fixed mortgage, refinancing to a rate closer to 4% will save you some dough each month.

Not only will it reduce your monthly payment, making life more affordable, but it will also result in less interest paid throughout the life of the loan.


Sounds like a win-win, but what if you’re unable to refinance for whatever reason?  Ben Bernanke, I’m looking in your direction…


 You Can Still Save Money


While you won’t be able to lower your monthly payment without refinancing, you can still save a ton of money on your mortgage another way.

Simply making extra payments, biweekly payments, rounding up payments, or implementing a variety of other methods, you can reduce the total interest you’ll pay on your mortgage without a refinance.

Sure, a refinance combined with extra monthly payments would save you even more money, but if you don’t have that option, this is the next best thing.

Imagine you took out a $100,000 mortgage five years ago and got a rate of 6% on a 30-year fixed.

You inquire about a refinance but after some shopping around determine you’re ineligible because your credit score isn’t up to snuff.

Instead of simply giving up, you can make larger payments each month and shave years off your mortgage (and pay a lot less interest).

If you paid an extra $100 monthly after making the standard payment for the first five years of the loan, you’d still save more than $26,000 and shorten the term to just over 23 years.

If you paid an extra $200 per month (after five years), you’d save more than $40,000 in interest and turn your 30-year mortgage into a 20-year loan.

The beauty of the non-refinance route is that you also don’t reset the clock on your mortgage. In other words, you don’t extend the term with a fresh loan. In fact, you do the complete opposite.


 But You Need Money…


There’s one huge caveat to this. You need money! Yes, if you actually want to save money on your mortgage without refinancing, you’ll need to make larger payments.

So for those looking to refinance to free up some cash, this method isn’t for you.

But for those who have extra cash lying around, you can get the same interest savings associated with a refinance by paying extra each month or in one lump sum.

Just keep in mind that the extra payments won’t lower future monthly payments. It’ll just reduce your term and total interest expense.

And who knows – if you pay down your mortgage more quickly now, you might be able to refinance in the future more easily because you’ll have a lower loan-to-value ratio.

source:  thetruthaboutmortgage.com

How to Recognize a Bad Mortgage Refinance Loan

As mortgage rates drop, you might anticipate refinancing your mortgage and getting a lower rate and payment. Your current home loan lender may encourage refinancing, and you might receive unsolicited offers from other banks in the area.

With so many financial institutions offering refinancing, and given how it’s a common mortgage practice, it’s easy to assume that any loan is a good one. Fortunately, not all re-financing offers are favorable, and if you’re not careful, you might refinance into a loan with undesirable terms. Here’s a look at three signs of a bad mortgage refinance.

1. Going from a fixed-rate to an adjustable-rate  

If you tell a mortgage lender you want the lowest interest rate and monthly payment possible, the lender might suggest refinancing into an adjustable-rate mortgage.

These mortgages typically offer lower rates than fixed-rate mortgages during the initial years, which can dramatically reduce your home loan payment. This is a godsend if you’re experiencing payment problems. The problem, however, is that these low rates aren’t permanent. Sure, you might have an attractive fixed rate for the next two or three years, but your rate will adjust every year thereafter. And with each rate adjustment, the interest rate can increase or decrease. If the rate increases, so does your home loan payment.

2. Lender encourages borrowing too much

When refinancing a mortgage loan, there’s the option of cashing out your equity. You can use the money for debt consolidation, home improvements or build your rainy day fund.

There’s nothing wrong with a cash-out refinance. If you have plenty of equity, it’s an affordable way to put quick cash in your pocket. The problem is that some people cash out too much of their equity.

A cash-out refinance increases how much you owe, so instead of dropping your mortgage payment, it might increase. And unfortunately, some lenders encourage borrowers to cash out as much of their equity as possible. A loan officer might excite a borrower by explaining the many uses for cash, and unfortunately, some people can’t see past dollar signs. As a rule of thumb, only consider a cash-out refinance if you can comfortably afford a higher monthly payment, or else you’ll risk losing the home.

3. Overly expensive closing costs

Closing costs vary, and you can expect to pay between two percent and five percent of the mortgage balance. If you’re refinancing for the first time, you may assume closing costs are the same no matter where you go. However, different banks charge different fees for common services, such as the loan origination, the appraisal, the title search, etc. And some lenders bet on the fact that you’re not going to do your homework and compare costs.

Even if you have a long-term relationship with your current bank and you’re using this financial institution for your refinance, make sure you get at least two or three quotes from other lenders. Since closing costs are paid out-of-pocket or wrapped into the mortgage loan, comparison shopping is the only way to protect against getting ripped off.

Bottom Line

Refinancing a mortgage loan can be the answer if you need a lower house payment. However, if you take a chance with an adjustable rate mortgage, borrow more than you can afford or get stuck with high fees, refinancing might not be as financially beneficial as you think.

source: totalmortgage.com