How To Reduce Your Remaining Mortgage Years Via Refinance To Lower Mortgage Rates

Mortgage rates are at a 12-month low. It's a terrific time to refinance. But what if you don't want to reset your loan to 30 years?

The good news is that you don't have to. With a little bit of savvy, you can take advantage of today's mortgage rates and shorten the number of years remaining on your loan. It all comes down to a financial term known as amortization (ah-mor-ti-ZAY-shun).

Amortization (ah-mor-ti-ZAY-shun) is the schedule by which your loan balance goes to $0 over time; and it can be manipulated for your benefit. You're the homeowner, and you're in control.

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A 30-Year Mortgage Schedule Favors Your Bank

When a bank sets your monthly principal + interest mortgage payment, it's based on the principles of amortization. With a mortgage, amortization tends to favor the bank -- the early years of a home loan are very heavy on interest payments and very low on principal.

If you've ever looked at your mortgage statement after a few years and thought, "I haven't paid this thing down a bit!", it's because of amortization. This is true for all fixed loan types, too, including the 15-year fixed-rate mortgage; a 20-year fixed-rate mortgage; and, the 30-year fixed-rate mortgage.

For example, look at these numbers on a fixed-rate amortization schedule.

If you were to borrow $300,000 from the bank at a mortgage rate of 4%, after 10 years, here is how much you would still owe given various mortgage products :

• A 15-year mortgage has $123,000 remaining of the original loan balance
• A 20-year mortgage has $180,000 remaining of the original loan balance
• A 30-year mortgage has $237,000 remaining of the original loan balance

With the 15-year home loan, you would have made a significant dent in the original loan balance. With the 30-year mortgage, by contrast, you've barely paid down anything at all.

At 4 percent, it takes 19 years, 4 months to pay a 30-year mortgage to pay down by half. This is decidedly bank-friendly.

It's also one reason why 15-year mortgages are so popular -- homeowners with 15-year loan pay much less mortgage interest over time as compared to homeowners with 30-year loans or 20-year loans.

Click to compare today's live mortgage rates.

You're Not Stuck With A 30-Year Fixed Rate Mortgage

The good news is that you're not "stuck" with a 30-year mortgage and its high costs of interest -- especially with current mortgage rates are as low as they are today.

Your first option to save on mortgage interest is to refinance into a new, shorter loan term.

If your initial mortgage was a 30-year fixed rate mortgage, for example, you can choose to lower your term to, say, 20 years or 15 years. Reducing the number of years in your mortgage "accelerates" your amortization and the loan pays off quicker.

When you switch to a shorter loan term, you also get avoid "starting your mortgage over" for another 30 years. You get a new loan, with a shorter term. You'll save big on your long-term interest costs.

At today's mortgage rates, homeowners using a 15-year mortgage will pay 65% less interest than homeowners using a thirty.

However, payments on a 15-year mortgage can be substantially higher as compared to longer-lengthed loans. This is because you're compressing the repayment period into a lesser number of years.

With a 15-year mortgage, your monthly mortgage obligation may jump as much as forty percent. For many U.S. households, that kind of increase can be too much to stomach. This is why some homeowners skip the refinance and opt to "prepay" their mortgage instead.

To prepay your mortgage means to send "extra" payments to your lender each month, chipping away at the amount you owe faster than your amortization schedule prescribes.

For example, if your mortgage payment is $1,750 per month, and you send $2,000 to your lender, you've reduced your amount owed by $250. 

Prepaying a mortgage shorten your loan term because the loan's balance will get to zero more quickly. The more you prepay, the more money you'll save.

Also, you can prepay nearly all mortgages with penalty. Government-backed mortgages -- which includes all FHA loans, VA loans, USDA loans and conventional loans -- come with no prepayment penalty ever.  

Click for today's live mortgage rates.

"Refinance-To-Prepay" On Your Mortgage

There's a third way to reduce your mortgage interest paid. It's called "refinance-to-prepay".

Refinance-to-prepay is exactly what it sounds like -- you refinance to a lower rate and prepay on your loan. It's a plan that can give the best of both options -- access to today's low mortgage rates, plus a quicker amortization schedule.

Here's how to refinance-to-prepay, and save in interest costs :

1. Refinance to a lower rate on your same mortgage program (e.g. 30-year fixed)
2. Take your monthly savings and apply it to your new loan monthly as "extra payment"
3. Stay on plan until your loan is paid in full

The refinance-to-prepay system works because, although your mortgage rate is lower, you're making the same payment to the bank each month. There's less interest being paid at the same time that you're "accelerating" your loan payback.

With refinance-to-prepay, you can "restart" your loan to 30 years but then pay it off faster than if you had never refinanced at all. It's a trick of math that plays on bank amortization schedules.

Here's a real life example of how refinance-to-prepay can work.

Say your current loan balance is $400,000 and you're refinancing from the 4.75% mortgage rate you took two years ago to a zero-closing cost 4.00% mortgage rate available today. With the refinance, your payment drops $246 per month so you take that $246 and send it to your lender along with your "regular" payment.

By prepaying your mortgage principal in this way, your "new" 30-year loan will pay off in full in just 24 years --  four years faster than if you hadn't refinanced at all. Those four years of "no payments" save $90,000.

Now, this example assumed a zero-closing cost mortgage at 4.00 percent. Even with closing costs, the maths works out. You're spending a little, and saving a lot.

Refinance Without "Losing Years"

With mortgage rates at 12-month lows, it's a good time to refinance. There are hundreds of billions of outstanding U.S. mortgages with rates over 5%. Opportunities are big today -- and you can refinance without "losing years" on your mortgage.

Compare today's low rates to your existing mortgage. See how many years -- and how much interest -- you can save off your mortgage. Rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.

Click to get today's live rates. 

Contact The Mortgage Mark with any questions!!   www.themortgagemark.com  

mark@themortgagemark.com  

THE 10 COMMANDMENTS WHEN APPLYING FOR A MORTGAGE LOAN

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Many individuals do not realize that even the slightest change in your financial situation after you apply for a mortgage can delay or ultimately jeopardize the approval of your loan.

In my experience as a loan officer, I have seen each and every one of these commandments broken.  Unfortunately, some of those had the judge (I mean the underwriter) come down upon them, resulting in their loan being denied.

If you’re going through (or about to start) the mortgage application process, please take each of these ten commandments to heart.

1. Thou shalt not change jobs, becoming self-employed, or quit your job.This probably goes without saying, but any change in employment can cause a major issue in the approval of your loan.  This can even mean a change in your job position or type of pay at the same employer (i.e. from hourly pay to commission pay).  While it may be an ‘upward’ move with more potential income, it may just derail your loan.
   Hint: Just stay put ’til you’ve completed your closing.
2. Thou shalt not buy a car, truck, van, motorcycle, ATV, or any other vehicle.In most cases, buying a new vehicle involves numerous credit inquiries, a new loan that must have the new terms verified, and if it’s a trade in, sometimes it takes weeks for the old loan to be paid off.  And unless you qualify with both of these payments, then this may just delay your loan closing.
   Hint: Don’t buy a new vehicle, or you may be living in it.
3. Thou shalt not use your credit cards excessively or let ANY of your payments fall behind.
   Current regulations require lenders to not just check your credit at the initial application, but also at closing.  This is done to confirm there have been no major changes in you debts.  If you had a $100 balance with a $10 minimum payment on that Wal-Mart credit card, but now you’ve went out and purchased new patio furniture, some area rugs, and that new 70″ flat screen TV and now you owe $1500 with a $100 minimum payment, that could be enough to cause your file to have to go back to an underwriter for approval, or worse, your file could be denied.
   Hint: Don’t make any changes in the normal use of your credit cards and do NOT forget to make the minimum required payments.
4. Thou shalt not spend the money you have set aside for downpayment or closing costs.I mean, does this really need to be said?  Unfortunately, yes.  I’ve seen it happen.
   Hint: Your assets required for closing will be verified and scrutinized during the approval process.  Be prepared to explain and document large deposits that are not normal paycheck deposits.
5. Thou shalt not buy furniture, appliances, or household items before you buyer your new home.This goes a lot back to #3 and #4.  Sometimes even the slightest change in your assets or debt load could delay or derail your closing.
   Hint: You can do without that new bedroom suit or refrigerator for just a few more days…you’ve made it this long, right?
6. Thou shalt not originate or allow new inquiries on your credit report.As I explained on #3, your lender will likely re-check your credit the day of your closing.  Any and all new inquiries will have to be explained and sometimes even verified by the creditor themselves to prove in fact no new accounts were opened.  Sometimes you’ll need an inquiry to obtain homeowners insurance or possibly set up accounts with a local utility company or satellite provider, but these types are easily explained.  However, any inquiries associated with credit cards, automobiles, and especially mortgage inquires, must be explained.
   Hint: Be very cautious with any inquiries or be very prepared to delay your closing a few days.
7. Thou shalt not make any large OR ‘cash only’ deposits into your bank accounts or transfer money between accounts.I’ll continue that statement by adding “without first consulting your loan officer.”  Honestly, every lender has a different way of handling these types of non-payroll deposits.  Ours rule, for example, is anything over $500 that is not a direct deposit or payroll related must be explained, sourced, and documented.  And depositing cash is a NO-NO!  We will review at least the past 60 days of account history on your bank statements.  Let’s say you need $5000 to close.  But a week before the application, you deposited $800 worth of cash you had stuffed under your mattress at home.  It’s going to basically be impossible to source and verify where that money came from, so while you really have the money in your account, it will be deducted from the “available balance” that we use to approve your loan.  So now, you have to have $5800 in your account to get to the actual amount of $5000 after the $800 is deducted.  Coming up with even more additional money for closing may be tough.
   Hint: Cash is NOT king.
8. Thou shalt not change bank accounts.This is using the “less is more” approach.  Changing bank accounts require additional verification of not only the account the money is now in, but also the previous account the money may have been withdrawn from.  If the amounts to match up exactly from one to the other, it may spell trouble for your approval.
   Hint: This is getting redundant, I know…but just wait!
9. Thou shalt not co-sign for anyone, or allow authorized users to charge on your credit accounts.
   The quickest  thing that can delay or deny your loan approval will be changes in liabilities.  Just imagine, your 16 year old son is fired up about his new truck.  He has a local gas company credit card that he runs up $500 in gas in 2 weeks carting his friends around the city.  This can change your balances, your FICO score, and your minimum payment.
   Hint: Put everyone on notice that all credit cards are temporarily ‘canceled’ until you give them the ‘ok.’
10. Thou shalt not omit any debts or liabilities from your loan application.
    This is a major issue and could be viewed as mortgage fraud.  If convicted, you could face 30 years in prison and up to $1,000,000 in fines.
    Hint: The truth shall set you free.  Trust me, it’s not worth the alternative.

Breaking any one of these commandments could result in your loan being denied.  A good rule of thumb is to always notify your loan officer immediately if any of these issues come up during your loan application.  They can tell you how each broken commandment needs to be addressed.

Following these 10 Commandments will lead you to the promise land of LOAN APPROVAL!

If you have questions, please leave a comment below.  You can also contact me with any personal questions.

Mark@themortgagemark.com    www.themortgagemark.com