Fear of Lender Buy Backs

If you're in the process of a purchase or refinance mortgage, here's a great explanation of what you might be attempting to overcome.

CNBC Video on Fear of Mortgage Buy Backs

When refinancing, consider lowering the term as well

Many borrowers are taking advantage of today’s record low rates to refinance and reduce their mortgage payments, but have you ever considered reducing your term as well?  Applying for a new, lower rate AND dropping the number of years on your mortgage can and will reduce the overall amount you pay for the life of the mortgage.

Consider this.  A homeowner who bought their house 2 years ago and financed $200,000 over 30 years at a rate of 5% has a principal and interest payment of $1073.64.  If they were to refinance to a new 30 year mortgage at 3.5%, their new payment would be about $898.09, depending on pay-off and new closing costs rolled in.  That’s a savings of $175.55 per month.  Not bad.  But now consider the same refinance, but for 25 years.  The same rate would result in a payment of $1001.25 for a savings of $72.39 per month.  Doesn’t sound like much until you look at the fact that the new 25 year mortgage also got rid of 3 years of the mortgage payment.

If that borrower kept the original mortgage they had, they would pay over $360,000 over the course of the remaining 28 years.  By refinancing to a new 25 year mortgage, they not only save the $72 per month, the overall payment over the life of the new loan is $300,375.  That’s a savings of over $60,000.

So, when considering a refinance, consider the lower term as well.  Many are utilizing this option and will be greatly rewarded for it in the years to come.