RefinancE challenge

By Julie Stav

Dear Carlos,
It appears that you may have participated in the recent mortgage refinance party and are now dealing with the symptoms of a “hangover.” Unfortunately, you are not alone. Countless home buyers and re-financers are waking up to the reality that their introductory teaser rates of 1 percent or 2 percent are adjusting to a realistic 6 to 7 percent—with the potential to continue increasing. Since most of these loans have a variable interest rate, that is a possible scenario.
Another problem that may lurk with these loans is that even though you may have paid a relatively low introductory monthly payment of $2,300, the difference between this artificially low rate and the realistic higher rate of $4,800—in this case $2,500—was actually tacked onto the outstanding balance of your loan. The time to act and save the situation is now!
First, it is imperative that you continue to make your monthly payments on time, and do not miss one payment no matter how hard it may be. It is important to protect your credit rating and companion FICO scores from any derogatory late payment entries.
Next, begin the process of shopping for a FIXED 30- or even 40-year loan. Choosing the 40-year loan will reduce the payments somewhat, helping you with your cash flow now. You can always voluntarily increase your monthly payment amount in later years if you wish to pay it off sooner than the 40-year contract.
When shopping for a new loan, consider the following:
• Visit several different types of lenders—thrift institutions, commercial banks, mortgage companies, credit unions and even some insurance companies. The key here is to shop around.
• Inquire about all the costs—interest rates, points and other fees. A great resource for comparison charts is the Federal Reserve’s website: www.federalreserve.gov/pubs/mortgage/mortb_1.htm#head1
• Remember, the interest rate and almost all fees and costs are negotiable.
• Discuss the option of obtaining a written lock-in from the lender or broker. It should clearly state the rate that you have agreed upon, the period the lock-in lasts and the number of points to be paid. You will be charged a fee for locking in the loan rate. This lock-in feature will guarantee a home buyer that the interest rate on a home loan will not change if the loan is closed within a certain period of time, such as 60 or 90 days.
• As you prepare to search for a new loan, don’t assume that that minor credit issues or difficulties stemming from situations such as illness or temporary loss of income will limit your loan choices to high-cost lenders. Take the time to shop around and negotiate your best deal.
• Whether you have credit problems or not, it is important to review your credit report for accuracy and completeness before you apply for a loan. You are legally entitled to one free credit report every 12 months. To order your free copy, contact Equifax at 800-685-1111, TransUnion at 800-888-4213, and Experian at 888-397-3742. You may also visit www.annualcreditreport.com.

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