Mortgage Refinancing Myths

Because debt financing is used in most if not all RE transactions, mortgages are necessary for eliminating uncertainty; Not only for the borrower but the lender as well. The lender can be certain of what risks are involved and this allows them to determine the risk premium in the interest rate. The borrower benefits immensely from the mortgage as it reduces the cost of borrowing, it details financial rights and obligations, and increases chances of a positive outcome.

That's why it's a good idea to understand the driving forces behind your mortgage rate. It will help you understand when it's a good idea to lock in a rate, or at the very least, help you make sense of your investment.

An FHA 203b Refinance loan is by far one of the most incredible loan programs out there. FHA will allow you to refinance and make improvements on your home. The value of your home is based on the “As completed” value – meaning once the work is done your house will be worth more. With this knowledge, FHA allows you to borrow against that "would be" value of your home.

The interest rates alone became a huge problem for the mortgage holders in Kansas City. Molly Fleming-Pierre, the policy director for Community Creating Opportunities in Kansas City stated that “Our residents, in just Kansas City, are paying 26 million dollars every single year in interest alone” (qtd. in We Are Superman). People cannot continue to pay such a large amount. The advantage for people in buying a home is that equity is built in something of great value. But with such high rates, these families put a huge portion of their house payment into paying the interest. It’s difficult for families to pay off a home with so little of it going to principle. Payments can be made for years and there still be so much owed for the home. This makes it impossible for them to get ahead on payments. Families cannot afford to sell the home, save more money, and move into a better, safer neighborhood with quality schools and convenient shopping. Another advantage of buying a home is paying it off and eventually living in something that is completely paid for. Without monthly house payments, money can go towards retirement and other items to better lives. But high interest rates make this dream much more difficult or even impossible to achieve.

Foreclosure is a dangerous issue that has swept our nation in the last few years. Americans are losing their homes due to jobs being lost, home values falling, and banks lending out more money than homeowners can afford. Despite the multitude of issues that arise out of foreclosure, the main problem at hand can be almost solely traced to the economy. The recession has put many people out of work, made taking out loans more difficult, and has caused a nationwide panic. Therefore, to completely solve the foreclosure problem, it is necessary to trace the issue back to its roots, being the economy. This would take fifty pages to discuss, so this paper seeks to solve one aspect of foreclosure. Refinancing is an option that has become

The dot-com bubble in 2000 was the start to the, still current, historically low interest rates – all thanks to the Federal Reserve. Since interest rates were so low, many Americans decided that now was the time to get the “American Dream” and buy houses, since the values were going up and mortgage and insurance rates were so low. By serially refinancing, people were quite literally treating their homes as a money bank, and not thinking twice of the equity they were loosing in the process, because they thought that the value would only go up, while their mortgages would decrease, and were blinded by the so called “American Dream”.

The economic decline has possible home buyers, especially first time home buyers, scared to invest anything into the housing market. With the fear of another depression in the back of everyone's minds, some businesses are attempting to clarify the pros of home ownership.

Unfortunately, the mortgages would take a turn for the worst; thus, resulting in investment funds lost and the inability to repay the loans that they borrowed from the banks (Isidore, 2008). Left with nothing, the banks were forced to declare the loans as unrecoverable, reduce the bank’s reserve, and limit their ability to generate new loans (Isidore, 2008). These actions destroy the economy because both businesses and buyers need loans to pay for investment expenditures and finance consumption (Isidore, 2008). An early problem was “ mortgage-backed security”. According to AP Economics 19 edition, “ Mortgage- backed securities are bonds backed by mortgage payments”(Brue). In order to create mortgage- backed securities, lenders begin by creating mortgage loans (Brue). When they do, the lenders combine hundreds of loans into one and sell them off as bonds; basically selling the right to regain all future payments (Brue). In the end, banks receive an individual payment for the bond. Bond buyers recover the mortgage payments as the gain on the investment (Brue). As first, it seemed like a good decision on the bank’s party because it moved any future default risk on those mortgages to the buyer’s bond (Brue). Unfortunately, they fail to realize that they had lent the significant amount of money they got from investment funds to selling bonds (Brue). Moreover, the banks bought huge amounts of

During 2007 through 2010 there existed what we commonly refer to as the subprime mortgage crisis. Through deduction of readings by those considered esteemed in the realm of finance - such as Ben Bernanke - the crisis arose out of an earlier expansion of mortgage credit. This included extending mortgages to borrowers who previously would have had difficulty getting mortgages; this both contributed to and was facilitated by rapidly rising home prices. Pre-subprime mortgages, those looking to buy homes found it difficult to obtain mortgages if they had below average credit histories, provided small down payments or sought high-payment loans without the collateral, income, and/or credit history to match with their mortgage request. Indeed some high-risk families could obtain small-sized mortgages backed by the Federal Housing Administration (FHA), otherwise, those facing limited credit options, rented. Because of these processes, home ownership fluctuated around 65 percent, mortgage foreclosure rates were low, and home construction and house prices mainly reflected swings in mortgage interest rates and income.

Home mortgage refinancing is the point at which you bring a loan with better terms to supplant your past one that was no more working for you. On the off chance that you have developed some value in your home, and choose to renegotiate, you might find that you now have more cash to do the things you need, as go on vacation, redesign or notwithstanding for the child's school reserve. Home mortgage renegotiate rates are as of now low, and it is a decent time to get another home mortgage refinancing loan

-The cost of borrowing is increasing, and that’s leading some new-home buyers to speed up their purchases, while discouraging homeowners from refinancing existing mortgages.

New loan offerings make it easier to buy a home, but harder to pick which mortgage is right for you. The standard 30-year fixed rate mortgage allows predictable payments. If you’re planning on moving quickly, consider an adjustable rate mortgage, which has low

Dramatically decrease monthly mortgage payment and provide homeowners extra income to live each month. For example, a $575,000 mortgage at 6% interest rate is about $3,500 per month. The same loan at a 2% interest rate is approximately $2,100 per month.

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage

An increase in loan packaging, marketing and incentives encouraged borrowers to undertake difficult mortgages so they believed that they would be able to refinance quickly at more favourable terms. People borrowed money to buy the house and then expected the price to rise and sold so that they could pay off the debt which owed to the bank and demanded a new loan to buy another house. However, once the interest rate began to rise and house’s price dropped in 2007, refinancing became more difficult and banks could not collect their mortgages.