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If you have a mortgage and you have been keeping an eye on the interest rates lately you are likely to have shed your share of tears. Interest rates in some cases have dropped by over 2% which means thousands and thousands of dollars extra interest you shouldn’t have to pay. You obviously would like a piece of the action and reduce your interest rate, who wouldn’t?

Now that sounds all very good but is it realistic to think you can save money on your mortgage by changing your mortgage to the current interest rates? It depends, it is possible to change mortgages to a lower interest rate and that can save you a lot of money, but it is also true that modifying your mortgage could also be an expensive and uneconomic move for you.

So what are the expenses, the real cost of low interest mortgage refinancing.
Prepayment penalties. These are often the mother of all mortgage refinancing expenses. Lenders often “protect “ their interests and avoid clients changing to cheaper loans by inserting clauses in mortgages that establish that paying the mortgage early (and not paying a whole lot if interest in the process) incurs a penalty to compensate the lender. The penalties can vary from a percentage of the amount of the principal paid to a fixed amount like 6 months interest payments upfront. Check carefully what interest rates you must pay before deciding to change mortgage provider.

Application fees.
The current economic crises that has caused so many to lose their income and consequently their homes has also had the effect of jumpstarting a new industry, loan modification advisors. These companies will ride you over the rocky terrain of loan modifications. Most of us don’t need them as the steps you need to take are rather simple. Whatever you choose to do remember they cannot guarantee you any outcome and that they can’t do anything you couldn’t for your own interests.
Title search, inspections and surveys.
The costs linked to mortgage refinancing and loan modifications are rather large. One should expect to pay anything between 3 to 6 percent of the outstanding principal in setup fees. This will include the survey of a qualified inspector that will determine if your home is still sound and therefore a good investment.

Title surveys, check the accuracy and availability of the titles attached to a home or property. Some banks will also ask for insect infestations and other smaller issues before agreeing to the loan.

These are just a small sample of the fees you will have to face. It is important that we compare our income, the c of loan modification and the savings the loan mod will provide.  Do yourself a favor and check the real cost before signing.

Related posts:

1. What does no-cost loan refinancing cost you
2. What is the cost of refinancing your mortgage
3. The REAL Truth About No Cost Loans

Related posts:

1. What does no-cost loan refinancing cost you
2. What is the cost of refinancing your mortgage
3. The REAL Truth About No Cost Loans

A balloon mortgage is one in which monthly payments are made for a pre-determined period of time, with the balance of the loan paid in full at the end of the loan term. Like an ARM, interest rates on a balloon mortgage are typically lower than on a fixed rate mortgage and this makes the monthly payments on a this type of mortgage are very low and affordable. Balloon mortgage loans are calculated to amortize over a longer period than the due date of the balloon. A balloon, or lump sum, payment is required at the maturity of the loan to completely pay off the remaining principal. Therefore its important to keep in mind that the terms on a balloon mortgage are insufficient to completely amortize the loan.

Balloon mortgages can, and often do, contain a contractual opportunity to refinance at prevailing rates when the balloon payment is due. If the balloon mortgage loan has the option to be refinanced when the initial period expires, it will be called a convertible balloon mortgage. Some balloon mortgages come with “reset” clauses that provide for the original lender to reset the loan terms so that the loan is fully paid off in the remaining twenty three to twenty five years. The advantage of a balloon loan with a reset is that the loan payment will remain constant for the remaining life of the mortgage. The disadvantage is that the borrower is subject to the then current rates. If you are unable to convert or refinance the balloon mortgage, you may be forced to sell your home to make the loan whole. However, for the initial period of the loan, the interest rates on a balloon mortgage are usually a little lower than a comparable Adjustable Rate Mortgage.

Alternatively, with a fixed-rate mortgage you’ll have the benefit of knowing exactly what your monthly payments will be for the entire term of the loan. Because few people have the funds to fully pay off the balance due at the end of the balloon term, when using a balloon mortgage as the instrument of financing, the borrower should be concerned about future interest rates because they will be subject to them when the loan matures. However, most people that take out balloon mortgages assume that they’ll be moving within the term of the balloon period or that they will be eligible for a more attractive loan at the end of that period. Many people also use balloon mortgages to get that larger dream house. This strategy can, in fact, be fairly risky and a borrower should consider the market risk against the benefit of a larger home. Again, at the end of that period, the borrower must pay off the loan in full – this is the “balloon” payment. For example, a 7 year balloon calculated to amortize over 30 years will have low payments for 7 years and then the remaining balance will be due.

Before borrowing it’s important to consider whether you already have too much debt, whether you will be able to service the debt if you refinance at the end of the balloon period (or pay the balance), the risks associated with the current real estate market, and other factors as well. While it can be fairly easy to make the monthly payments on a balloon mortgage, it is very important to consider that there could be difficulty in managing the terms of the loan once it matures. In the current climate, fixed-rate mortgages are definitely the “loan of choice” for homeowners seeking a refinance mortgage, but if all the factors are considered and risks weighed, a balloon mortgage can be a viable alternative. Loan programs vary depending on the borrower’s credit, closing costs vary from state to state, work with your loan officer to get a proper estimate when you apply for your loan.