onsdag 8. januar 2014
"Refinancing risk" is a term that is associated with two different types of scenarios in the financial industry. The first scenario involves the risk that individual mortgages in mortgage-backed securities will refinance. The other meaning deals with the risk that is associated with a business or individual not being able to refinance their loan under terms that would be considered suitable. Mortgage backed securities are a type of investment that many individuals can get involved with in order to speculate in the real estate market. When a primary mortgage lender initiates a mortgage with an individual, they will often package it with other mortgages and sell them to investors. These packages are made up of hundreds of mortgages. Owning a portfolio of mortgage-backed securities has what is called refinancing risk. When interest rates in the mortgage industry become very low, there is always the possibility that existing homeowners will want to refinance their mortgages. When borrowers can get out of their mortgage and into a lower interest rate, they will refinance When this happens, the mortgage-backed securities holders lose out on a lot of their returns. Once the home is refinanced, the mortgage-backed securities holder will not be able to continue receiving payments from the homeowners. This will reduce the amount of yield that is possible with this type of investment. On the other end of the spectrum, mortgage-backed securities holders also have to be aware of what could happen if interest rates increase. If rates increase substantially, a mortgage payment can increase very high and cause a foreclosures to occur. If the mortgages are adjustable rate loans, many people will have mortgage payments that they can no longer afford to make. They will default on these loans and this will also ruin the investment of the mortgage-backed securities holders. Unable to Refinance "Refinancing risk" is a term that is also used to describe a situation in which an individual cannot refinance their existing mortgage. For example, many people take a balloon loans for business purposes or for their mortgage. When they take out a balloon loan, it is typically so that they can have a very low mortgage payment. They will only have to pay the interest that is accruing each month as their mortgage payment. They do this with the idea of refinancing into a traditional loan before the balloon payment comes due. While this scenario is possible, sometimes people run into problems along the way. When they go to refinance the existing loan before the balloon payment comes due, they might be unable to get approved. If their credit has deteriorated during the loan term, they may be unable to qualify for a new mortgage. Read more: http://www.finweb.com/investing/what-is-refinancing-risk.html#ixzz2ppwT1ygj
kl. januar 08, 2014
tirsdag 7. januar 2014
Borrowers who are looking to refinance face the dilemma of deciding where to take their business: do they stick with their existing lender, go elsewhere, or do they do both? Let's examine the advantages and disadvantages of using your current lender. First the advantages: The main reason that people use their current lender is likely a matter of convenience. They don't have to deal with shopping around and making decisions. The lender has immediate access to their file and payment history, whereas new lenders would have to investigate and gather this information. There's a certain comfort level from already having done business with this person and company, and perhaps even a perception that this should afford them some kind of special treatment. All of these things are true - to some degree. The current lender may be in a position to offer lower loan settlement costs than a new lender. The greatest potential for lower refinance costs arises in instances where the current lender originated and still owns the loan (in other words, the loan hasn't been sold to a third party). If the borrower's payment record has been good, the lender may forgo a credit report, property appraisal, title search, and other risk-control documents which are otherwise mandatory on new loans. Of course, this is strictly up to the lender. On the other hand, if the current lender originated the loan but later sold it and is now only servicing the loan for the new owner, the potential for lower refinancing costs is less. A lender that's providing servicing for the loan's owner must follow the guidelines set down by the owner. For instance, if the loan was sold into the secondary market, then the guidelines that must be adhered to are theirs. While there may be provisions for some streamlined refinancing with less documentation, the discretion that's granted to the lender is extremely limited, as well as the potential for any significant cost savings. Now some disadvantages: Perhaps the strongest argument against refinancing with the current lender is that he or she may not offer borrowers the market price. Because of the convenience factor, most people will simply opt to refinance with their current lender; and make no mistake, the lender knows this. Any settlement cost benefits that the current lender offers may only serve to draw the borrower's attention away from the fact that the loan's rate and points aren't very competitive. Such above-market offers are especially likely if lenders take the initiative by soliciting their own customers. Those who do may base their loan offer on the borrower's existing rate. For example, if the market rate is 6%, the borrower with an 8% mortgage could be offered a 7% deal, which might very well be accepted. The lender's intent is to provide a savings over the existing loan that's attractive enough to discourage the borrower from looking elsewhere. At the same time, the lender gives up as little as possible. Another problem facing borrowers who are dealing with their current lenders is that they may not get the best service available because the lender has no real interest in completing the transaction. Consider this question and you'll understand the reason: Why should the lender rush to convert an 8% loan to a 6¼% one? Generally speaking, the best strategy for the borrower is to first check the settlement cost savings that the current lender can offer, and then shop the market by getting quotes from several other lenders. After getting the best price available, the borrower can then return to the existing lender to try to get a comparable deal. Read more: http://www.finweb.com/mortgage/should-you-refinance-with-your-current-lender.html#ixzz2pkrYVzyy
If you need to refinance a car loan, bad credit can seriously affect your chances of obtaining the best rates. When you find someone to refinance your loan, you will discover that you might be able to decrease the loan term or the interest rate to make handling the loan easier. This will help you make the payments on time and improve your credit as a whole. Find a Company to Help You Looking online for a company with a good reputation is the best way to find a suitor to help with your refinancing requirements. If you happen to know a local company, you can contact them for a quote on a bad credit car loan. If you look online, make sure the company has the proper accreditations and are part of the Better Business Bureau for loan protection. Start by searching for a company where the application process is easy, and the auto loan interest rate is better. It is smart to stay away from prime lenders. These places will usually only work with people who have excellent credit. Do some research and look into going with sub-prime or high-risk lenders. These professionals specialize in dealing with bad credit refinancing. Most sites have an “apply now” button where you input your personal details and the amount of money requested. After a credit check, the company will subsequently approve or deny you. If your application is successful, they will advise you of the next steps and anything you need to provide in terms of written proof. Also make sure that when you fill out a form online, that you are redirected to a secure server before you enter your details. Secure servers are usually indicated by the address bar turning a light shade of green and the HTTPS:// will be displayed instead of the usual HTTP://. Alternative Options If you once had good credit and your circumstances have forced you into hard times, you can always try your bank or local credit union. Banks may be able to help you before you try outside sources. Even with bad credit, some banks will still offer a loan to a well-known customer who has previously been exemplary in paying their bills. Trade-In Call the lender and find out what the loan balance is. After you have done that, you should figure out what your car is worth. This is very important with bad credit because you need to have a vehicle that is worth more than what you owe on it. Kelley Blue Book is a good resource for this. Secure Your Loan You may need to secure your loan on your home. If you are a mortgage holder or homeowner, you may be better advised to get a bad credit loan from a company who secure the loan on your home. You will be offered a better rate of interest on your car loan refinance and of course, you will need to keep the payments because they will put a lien on your home until it is paid it full. Send Your Application Once your application is mailed to you for signing, you need to make sure you have all the necessary information to hand. You may need to supply photocopies or originals of bank statements, pay stubs, tax information and anything relevant to the loan company’s request. If you need to mail off originals, then it is a good suggestion to make sure that you mail it recorded delivery so it will be signed for as proof of receipt by the recipient. Receive Your Loan Agreement Once you receive your loan agreement, you have a grace period where you can change your mind. Read the contract carefully, including the small print before you sign. Once you have signed and sent your agreement back, your loan company will then acknowledge your contractual obligations and pay the money into your bank account or send you a check. While refinancing a car loan with bad credit may seem like a thorough process, you can stop the process whenever you want to do so. You still have the situation that precipitated your request in the first place. If you decide to halt the process, work with your bank or loan officer to find a solution to your problem. Perhaps the bank has a buyer looking for a vehicle that is like yours. This buyer may be willing to take the vehicle off your hands for the remainder of your loan. Be sure there are no resulting penalties from your attempted refinance.
Refinance car loan rates often beat out an existing loan with a low APR. Learn when to refinance, and how to get a quick auto refinance approval. Comments 2 0 0 Share 0 Arefinance car loan is an effective way of saving money. A lot of people pay high interest rates on their car loans and overlook the benefits of auto refinancing. It helps you focus on repaying the principal of the loan rather than paying a lot of money on the interest. Even though refinancing your car loan is a straightforward process, you need do your homework and evaluate your credit score. See what kind of interest rates you can get >> Choose the Right Auto Loan Lender Your first step in refinancing your car loan should be to find an auto loan lender who offers a low Annual Percentage Rate (APR). Research lenders and see what they have to offer. Consult your friends who have had an experience in auto refinancing. Ask them to the good and bad points about their auto lender company and be sure to ask them how much they lowered their car payment and how much they ultimately saved with auto loan refinance. Since most refinancing companies have their own calculator, it is advisable to shop around and check which company provides the lowest interest rate. You can determine which company has a lower interest based on the monthly payment it estimates you need to pay. Check at least three different companies before settling on one. Use an Auto Loan Refinancing Calculator An auto loan refinancing calculator is a great tool that you must take advantage of. Most companies that allow consumers to refinance their auto loan have a refinancing calculator. This calculator will give you an estimate on how much your monthly payment will be, based on the remaining balance, the interest rate and the new term. Get started by finding your refinancing rates now >> Run a Credit Check Before you refinance your auto loan, it is best to run a credit check to determine your current credit standing. As with any financing application, you need to know whether you have a bad credit history, since this may determine the interest rate for the refinance auto loan. There are several accredited websites where you can check your credit report or history. Do Not Apply for a Refinance Car Loan If Your Credit Score Is Below 600 If your credit score is not impressive, you will not gain maximum benefits from refinancing. Interest rates are determined by your credit score. If you have a good credit score, it is likely that you will get a lower interest rate. You should have a good credit history before you apply for refinancing. Consulting a credit repair company to improving your credit score will prove helpful. It is a myth that your credit score drops if you run your credit report online. It is common for auto dealers to use your ignorance about your credit history to charge you higher interest rates. Consider Auto Loan Refinancing Even If the APR on Your Car Loan Is Low Do not rule out the possibility of getting a lower APR than your current loan. Even if your current APR is low, you have a chance to save money by refinancing your loan and finding a lender who will offer you a lower APR. Gather Information about Your Current Loan Refinancing your auto loan is a great way to lower your payments. However, before you can lower your car loan payments, you first need to determine specific information about your current car loan. Find out how much the remaining balance is. When you refinance an auto loan you will be asked for this information. You will also be asked for the current interest rate, as well as the current loan term or the length of time you previously planned to pay the loan. Plan How Long You'll Take to Pay off the Loan Since the purpose of refinancing your car loan is to lower your monthly payment, you need to plan how long you want to pay off the new loan. This is a great way for you to schedule and fix your finances. By knowing beforehand how long you will pay for something, you'll be able to plan ahead financially. It is important to plan several dates, so you can determine the best time frame for you to pay off the loan. Follow These Tips for Speedy Auto Refinance Approval Auto refinance loan applications need to be in the same names (with exact spelling) as the names on your current auto loan. It is important to provide accurate information about your car: the year, model and the Vehicle Identification Number (VIN). Your auto loan refinance amount should not be higher than the value of your car. People with good credit tend to have too much credit, and too many old accounts that they no longer use. Auto lenders view might view this as a risk in offering you a good APR. As a result, it is important to close all the old accounts. Try to achieve a clean credit report with no charge offs. A previous car loan or home mortgage on your record definitely increases the chances of the loan approval.
The best mortgage rate is really a relative term. The absolute best or lowest mortgage rate isn’t always right for everyone--because the lowest rates available usually require significantly more closing costs than do rates that are not as low. Knowing why you want to refinance, and what your goals are for refinancing, is critical to finding the best rate for your situation. Your risk tolerance also can have an effect on your mortgage rate. Historically, adjustable-rate mortgages, or ARMs, have lower initial interest rates than 30-year fixed-rate loans. However, you risk the interest rate rising once the loan adjusts. Sponsored Link Flybonus er tilbake Få CashPoints på alt du handler. Eff 23,1%,15000,12mnd. Totalt 16764 www.banknorwegian.no/Kredittkort 1 Discuss the reason you want to refinance with any other borrowers on the loan. Estimate the number of months you will continue to live in the home. Your strategy will be different if you plan on living in the home until it is paid off, than it will be if you know you will outgrow the home in the next few years. Write down your goals and estimates. 2 Shop your mortgage with several lenders and brokers. Talk to at least three to five companies before you make a decision. Ask for multiple loan scenarios for comparison. Your quotes could include a 30-year fixed, a 15-year fixed, an ARM and a hybrid ARM. Hybrid ARMs have fixed-rate periods for three, five or seven years before they adjust. Their rates will be higher than a normal ARM that adjusts annually, but lower than a 30-year fixed-rate loan. 3 Compare the different loan programs from each lender. Decide which loan you prefer and discard the remaining quotes. Complete the “using the shopping cart” section on page three of the good faith estimate, or GFE. Fill out each loan’s specific costs and interest rate. 4 Subtract the proposed principal and interest payment from the current principal and interest payment. The result will be the monthly savings the new loan will provide. Divide the closing costs by the monthly payment savings. The result will determine how many months of savings are required to pay for the refinance. Subtract the number of payments required to pay for the loan from the total number of months you expect to own the home. Multiply the remaining months by the monthly savings. If the new loan will save you $120 each month, and the closing costs are $3,600, it will take 30 months to pay for the refinance. If you plan to own the home for seven years, then you will have 84 months of saving $120 each month for a total savings of $10,080. Work each quote using the same formula and apply for the loan with the largest total savings.
The best mortgage rate is really a relative term. The absolute best or lowest mortgage rate isn’t always right for everyone--because the lowest rates available usually require significantly more closing costs than do rates that are not as low. Knowing why you want to refinance, and what your goals are for refinancing, is critical to finding the best rate for your situation. Your risk tolerance also can have an effect on your mortgage rate. Historically, adjustable-rate mortgages, or ARMs, have lower initial interest rates than 30-year fixed-rate loans. However, you risk the interest rate rising once the loan adjusts. 1 Discuss the reason you want to refinance with any other borrowers on the loan. Estimate the number of months you will continue to live in the home. Your strategy will be different if you plan on living in the home until it is paid off, than it will be if you know you will outgrow the home in the next few years. Write down your goals and estimates. 2 Shop your mortgage with several lenders and brokers. Talk to at least three to five companies before you make a decision. Ask for multiple loan scenarios for comparison. Your quotes could include a 30-year fixed, a 15-year fixed, an ARM and a hybrid ARM. Hybrid ARMs have fixed-rate periods for three, five or seven years before they adjust. Their rates will be higher than a normal ARM that adjusts annually, but lower than a 30-year fixed-rate loan. 3 Compare the different loan programs from each lender. Decide which loan you prefer and discard the remaining quotes. Complete the “using the shopping cart” section on page three of the good faith estimate, or GFE. Fill out each loan’s specific costs and interest rate. 4 Subtract the proposed principal and interest payment from the current principal and interest payment. The result will be the monthly savings the new loan will provide. Divide the closing costs by the monthly payment savings. The result will determine how many months of savings are required to pay for the refinance. Subtract the number of payments required to pay for the loan from the total number of months you expect to own the home. Multiply the remaining months by the monthly savings. If the new loan will save you $120 each month, and the closing costs are $3,600, it will take 30 months to pay for the refinance. If you plan to own the home for seven years, then you will have 84 months of saving $120 each month for a total savings of $10,080. Work each quote using the same formula and apply for the loan with the largest total savings.
There has never been a better time to refinance your mortgage. Rates are at record lows. The government is devising new programs to help homeowners. The economy and job market are improving, albeit slowly. View Graphics Adrian Lubbers In theory, those factors should be producing a boom in mortgage refinancing. But locking in a deal is proving to be a challenge these days—even for well-heeled homeowners. That is because low appraisals and tight lending standards are making it difficult for many borrowers to refinance, even if they have good credit and substantial assets. Even those who meet these hurdles can face frustrating waits. The good news is that borrowers aren't powerless in the process. By shifting assets to your mortgage lender, cleaning up your credit and understanding the new government programs, you can improve your chances of scoring a good refinance deal. "The reward in the end is substantial, provided you can survive the process," says Keith Gumbinger, a vice president at mortgage-data provider HSH.com. Powerful Lure Today's interest rates are a powerful lure even for homeowners who bought or refinanced a home recently. The average rate on a 30-year fixed-rate conforming mortgage is 3.84%, down from 4.22% in mid-March and the lowest level in at least 60 years, according to HSH.com. Homeowners can save a bundle. At current rates, someone who took out a $400,000 mortgage in May 2011 at 4.75% could shave more than $200 from his monthly payment, according to HSH.com. Enlarge Image The latest drop in rates has created a big pool of potential borrowers. All told, about 20.5 million homeowners have mortgages with rates above 5% and are current on their loan payments, according to real-estate data and analytics company CoreLogic, making them good candidates for a refinance. Another 12.9 million have rates between 4% and 5%. Lance Roberts, a money manager who lives in a Houston suburb, locked in a 5.25% rate when he refinanced his mortgage at the end of 2010. Now he is refinancing again, to a loan with a rate of about 4%. "I was great," he says, "but at 4%, I'm doing even better." As a general rule, anyone who can find a deal that will recapture the closing costs within 18 months should "just do it," says Lou Barnes, a mortgage banker in Boulder, Colo. Relief, for Some Many borrowers haven't been able to take advantage of lower rates because they are "under water," meaning they owe more than their homes are worth. But some of these homeowners might soon get relief. Five of the nation's biggest banks—Ally Financial, Bank of America, BAC -0.06% Citigroup, C +0.69% J.P. Morgan Chase JPM -1.15% and Wells Fargo WFC -0.04% —are required to refinance certain underwater borrowers as part of a $25 billion settlement of the government's investigation of questionable foreclosure practices. To qualify, borrowers must be current on their mortgage, have a loan owned and serviced by one of the five banks that was originated before Jan. 1, 2009, and meet other requirements. Borrowers can expect savings, but the banks aren't required to give them today's rock-bottom rates. Under the settlement, the new rate must be at least 0.25 percentage point lower than the borrower's existing rate, or decrease monthly payments by at least $100, though Ally and Citigroup say they will generally be refinancing borrowers into new loans with market rates under the program. Enlarge Image A home for sale in Virginia, outside Washington Reuters The Obama administration also has been pushing to make it easier for borrowers with loans backed by government-controlled mortgage companies Fannie Mae and Freddie Mac to refinance, even if they don't have any equity in their homes or strong credit. Changes that took effect this year allow borrowers who owe more than 125% of their home's value to refinance under the government's Home Affordable Refinance Program, or HARP. Other changes have made the program more attractive to lenders by reducing the risk they will have to repurchase loans that go bad. Chris Delzio, a financial adviser, in May used the HARP program to refinance the $135,000 mortgage on his three-bedroom Palm Bay, Fla., home, even though the value of the property has fallen. The refinancing allowed Mr. Delzio to drop his mortgage rate to 4.375% from 6.625%, for a monthly savings of $247. Mr. Delzio says he tried to refinance last year, but his lender, Wells Fargo, said he needed to come up with about $40,000 in cash because he had no equity. Hurdles Even with the changes, the refinance process can be time-consuming. "For a lot of people, it's a battle," says Steve Walsh, a mortgage broker in Scottsdale, Ariz., noting that borrowers who are self-employed or own multiple properties can run into problems even if they have good credit and substantial assets. Clogged mortgage pipelines mean it now takes the nation's biggest mortgage lenders on average more than 70 days to complete a refinance, according to the consulting firm Accenture, ACN +1.22% up from 45 days a year ago. Some big lenders routinely advise borrowers that their refinance can take as long as 90 days. Low appraisals are another problem, particularly for borrowers who don't qualify for the HARP program, which is limited to borrowers whose loans are backed by Fannie Mae or Freddie Mac. Generally, lenders consider it risky to issue loans to borrowers who don't have any equity. Some lenders, such as Bank of America and J.P. Morgan, are offering HARP refinances only to existing customers. Others, such as U.S. Bancorp, USB +0.84% won't provide HARP refinances to borrowers who owe more than 105% of the home's value unless they already service the loan. "We and most other lenders…are very excited to help people out," says Dan Arrigoni, president of U.S. Bank Home Mortgage. "But if it's not our loan, we are adding a lot of risk to our portfolio" by refinancing a borrower who is deeply under water and, as a result, more likely to default. Still, for those who can clear the hurdles, today's low rates may present a once-in-a-lifetime opportunity. Here are some tips for making your way through the process: Repair your credit. Pull a copy of your credit report before beginning the refinancing process. "You want to give yourself ample time to clear up any mistakes and put your best foot forward in the qualification process," says Greg McBride, a senior financial analyst at Bankrate.com. Borrowers with good credit scores of 740 or more generally get the best rates, he says. Low-income borrowers aren't the only ones who can run into credit problems. "Someone with a higher score who misses a payment could take a bigger hit than someone with a lower score, because there's further to fall when they stumble," says Anthony Sprauve, a spokesman for Fair Isaac, FICO -0.02% creator of the FICO credit score. Borrowers who have elected not to use much credit can wind up with a low credit score. Under the Fair Credit Reporting Act, borrowers are entitled to one free credit report from each of the three main credit bureaus— Equifax, EFX +0.69% Experian and TransUnion—every 12 months. You can request a free credit report at AnnualCreditReport.com or by calling 877-322-8228. Shorten the loan term. If you are several years into your mortgage, you can maximize your savings by opting for a new loan with a shorter term. Consider a borrower who took out a $200,000 30-year fixed-rate mortgage with a 5% rate in 2009. Refinancing into a 30-year fixed-rate mortgage with a 3.875% rate would lower monthly payments by $177 to $897, according to HSH.com, and provide about $25,000 in savings over the life of the mortgage. Shift to a 25-year mortgage with the same rate and the payment falls by about $100 less, to $993, but the savings over the life of the loan jump to nearly $50,000. With many borrowers seeking to pare debt, a growing number of lenders now offer mortgages with terms of 25, 20, 15 and even 10 years. Contact many different lenders. Rates are at historical lows, but the gap between the best and worst deals can be as much as a full percentage point, according to HSH.com. With pipelines near capacity, some large lenders have been raising rates in an effort to hold down volume while boosting profits. Websites such as Bankrate.com, HSH.com and Zillow.com allow borrowers to compare rates from different lenders. Loan costs also can vary substantially. When Bankrate.com surveyed lenders last year, "origination fees," which compensate the lender or broker for arranging the loan, ranged from a low of $123 to more than $2,000 on a $200,000 loan, depending on the lender. Getting estimates from multiple lenders can give you ammunition to negotiate a better deal, says Mr. McBride of Bankrate.com. Even in an era of tight credit, standards vary. Borrowers with good credit scores, who have been on the job for at least two years and aren't self-employed, and have at least 20% equity are likely to have the easiest time refinancing, says David Zugheri, co-founder of Envoy Mortgage in Houston. Meanwhile, those with weak credit and reduced incomes face substantial hurdles. Enlarge Image Low appraisals and tight lending standards are making it difficult for many borrowers to refinance. Reuters Jason Russell, a San Francisco mortgage broker, says he approached five lenders before finding one that would refinance one of his clients, a partner in a law firm who had solid finances but couldn't show two years of self-employment income because his firm recently had been acquired. Relationships can make the difference. Banks remain cautious about mortgage lending, but some show more flexibility to their better customers. Daniel Goldstine, a psychologist who lives in Berkeley, Calif., says several lenders refused to refinance his $1 million mortgage, even though he has good credit, substantial assets and his home was appraised for about $5 million. Mr. Goldstine says he was able to secure a refinance through Citigroup after making a large deposit there. "Sometimes we will ask customers to bring additional assets to the bank," says CitiMortgage president Sanjiv Das, who declined to discuss specific customers. "Then we know you have the ability to pay based on your assets." Bank of America is offering more underwriting flexibility to certain customers who have at least $250,000 in assets with the bank or its Merrill Lynch or U.S. Trust units. For instance, a borrower with a company car might be allowed to provide three months of documentation showing that the employer is picking up the expense, instead of 12 months, as is standard.
mandag 6. januar 2014
Refinancing risk From Wikipedia, the free encyclopedia This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (May 2008) Categories of Financial risk Credit risk Concentration risk Market risk Interest rate risk Currency risk Equity risk Commodity risk Liquidity risk Refinancing risk Operational risk Legal risk Model risk Political risk Valuation risk Reputational risk Volatility risk Settlement risk Profit risk Systemic risk v t e In banking and finance, refinancing risk is the possibility that a borrower cannot refinance by borrowing to repay existing debt. Many types of commercial lending incorporate balloon payments at the point of final maturity; often, the intention or assumption is that the borrower will take out a new loan to pay the existing lenders. A borrower that cannot refinance their existing debt and does not have sufficient funds on hand to pay their lenders may have a liquidity problem. The borrower may be considered technically insolvent: even though their assets are greater than their liabilities, they cannot raise the liquid funds to pay their creditors. Insolvency may lead to bankruptcy, even when the borrower has a positive net worth. In order to repay the debt at maturity, the borrower that cannot refinance may be forced into a fire sale of assets at a low price, including the borrower's own home and productive assets such as factories and plants. Most large corporations and banks face this risk to some degree, as they may constantly borrow and repay loans. Refinancing risk increases in periods of rising interest rates, when the borrower may not have sufficient income to afford the interest rate on a new loan. Most commercial banks provide long term loans, and fund this operation by taking shorter term deposits. In general, refinancing risk is only considered to be substantial for banks in cases of financial crisis, when borrowing funds, such as inter-bank deposits, may be extremely difficult. Refinancing is also known as “rolling over” debt of various maturities, and so refinancing risk may be referred to as rollover risk.
Shutdown impacts EDA refinancing By LAUREL BEAGER Editor | Updated 2 months ago Repercussions of a 16-day partial federal government shutdown that ended more than two weeks ago are being felt locally. The International Falls Economic Development Commission took the advice of its bond counsel and took no action Monday to refinance bonds sold to pay for construction of the Voyageurs National Park headquarters. Refinancing the bonds could save more than $400,000. The bonds secured in 2010 for the construction of the Voyageurs National Park headquarters building have 18 years left to mature at a current interest rate of 6.17 percent. A May motion to move forward with refinancing the bonds, should an analysis show savings, was contingent upon Northland Securities and Briggs and Morgan providing the EDA with letters stating they will share in the risk of this action and will not bill the EDA for expenses incurred if the market condition proves to be unfavorable for refinancing. Just hours before the EDA Commission meeting was set to begin, Steven J. Mattson, executive vice president and co-founder of Northland Securities, said in an email that its bond salesmen contacted dozens of buyers of these types of bonds and have been told that “at the moment they will not look to purchase these refunding bonds due to the credit of the federal government. The country just went through a shutdown and the scars have not healed as of yet.” Mattson said the concern of the market caught Northland Securities by surprise. “We had indications of interest for most of the bonds as of last week, but when the calls were made to the banks this morning they said they had little interest in the International Falls bonds,” he wrote Monday. Mattson said the delay may be a blessing. He reminded the commission that the existing bonds are not callable until October 2014. “If we refunded in early 2014, we will not spend as much on the government escrow and will save money because we have less negative arbitrage,” he wrote. That, he said, could save the EDA another $100,000 if interest rates do not rise over the next three months. He said Moody’s, a company that provides credit ratings and other investment services , would only charge the EDA a “nominal fee” for a fresh rating. Commissioner Bob Anderson asked for a definition of nominal, and Shawn Mason, he city’s economic and community development director, provided an email early Tuesday morning from Mattson, stating that the nominal fee will depend on how far past 90 days the action is delayed, but said from one to 45 days past 90 days and the fee may be in the $4,000 to $5,000 range above the initial rating fee ranging from $12,000 to $14,000 . “Again, within 90 days we are free and if we go past 90 days and trigger a nominal fee it would only be if we intended to save hundreds of thousands of dollars,” wrote Mattson. “We will test the market on the credit problems we found today before we enter the market again.” Other action Meanwhile, a motion at the Sept. 23 meeting raised concern with Anderson. He said he believed the motion to cease providing ledgers in the monthly packets provided to the commissioners and members of the public should have been ruled out of order. The motion said ledgers would be provided as requested at least on a quarterly basis to commissioners who request them. Anderson Monday voted against acceptance of the minutes, with Commissioners Cynthia Jaksa and Pete Kalar voting for approval, saying they were an accurate reflection of the action. Commissioners Gail Rognerud and Paul Eklund were absent from the meeting. The commission is made up of members of the Falls City Council. A later motion calling for the ledgers to be provided at each meeting as a part of the financial report was approved unanimously. But Mason, in emails sent Tuesday morning to the commission, said she needed to ask Anderson, who serves as Falls mayor, why he does not require public presentation and disclosure of financial reports from any other department or organization of which the city is the fiscal agent. She said the only time such detail is presented is during budget time. “Is fiduciary responsibility defined differently depending upon which department or organization we are speaking of?” she asked in the email. “It is my belief that the administrator’s position needs to follow the city charter and I have continually discussed with the members of the council that financial reporting needs to occur at the city council meeting,” replied Anderson in an email. “The administration office is presently working shorthanded and is providing a monthly report on fund balances and most, if not all expenditures of the departments through the regular claims. The airport, library and recreation boards have citizens serving on them that have the same fiduciary responsibility to expend the citizens tax dollars with the same care. Should the city council get their financial reports? My belief is yes. Not to second guess them, rather to look for trends and understand the needs of these operations.”
To refinance an investment property, you should examine your current debts, as well as the market value and equity in the home. It’s also necessary to look at how the new loan will affect your taxes and how long you plan to be at the house, selecting the term length that is appropriate for your goals and situation. Making an effort to keep your interest rate and fees low will save you money, as will being able to put more into a down payment. Almost all banks will want you to have an appraisal done and provide documentation proving you qualify, but you can find the best deal by shopping around. Other Debt The first thing to do when you want to refinance investment property is look at the other debt you have. On the most basic level, banks generally look at your debt-to-income ratio, or the amount of money you owe divided by the money you’re bringing in, to see if you can afford to take on a loan, so if the ratio is high, refinancing at a decent interest rate might be difficult. Another reason to look at the other creditors you’re currently paying is that mortgage refinance agreements usually offer lower interest rates. If you consolidate, you can pay off the bills that charge more and pay a reduced rate of interest to the new lender. Legally speaking, a bank typically prefers that you pay off an existing home equity line of credit (HELOC) before approving your loan application. This has to do with whether it is considered “superior” or in “first lien” position — that is, whether it would get paid first if you defaulted and the investment property were sold. Lenders want first lien position because it reduces the risk of loss. In many jurisdictions, superiority is determined by the date the mortgage is recorded, so if you already have a HELOC, a bank might be less willing to put your request through. In some cases, more generous financial institutions might allow you to use the loan to pay off the HELOC, and occasionally, they’ll consider willingly subordinating their lien position, or you can see if the bank that gave you your home equity line of credit will consider offering a new refinance contract. Market Value and Equity Equity is the difference between the market value of your home and the amount you have left to pay on your mortgage. As an example, if your property is worth $350,000 USD and it sells for that amount, if you have $50,000 left to pay, the equity is $350,000 - $50,000, or $300,000. Banks usually require larger equity on investment properties, with some looking for as much as 50%, because this indicates you have a significant ownership interest in the home. Some lending organizations, such as the United States Federal Housing Administration (FHA), provide lower equity requirements and have less stringent guidelines. Taxes In many areas, such as the United States, tax regulations control how you must handle refinance loan interest. You may or may not be able to take a deduction on it, depending on your reason for taking on the new debt. It is advisable to consult an attorney or certified public accountant (CPA) before beginning the application process, because these laws can be quite complicated. Time In most cases, it is a good idea to refinance investment property only if you plan to be at that location for at least 10 years. It generally takes at least this long before all the closing costs and other fees get recouped, which is a major reason why most lenders usually don’t offer agreements any shorter than this. Another way to consider time is to look at your monthly budget. The longer your term, the lower your monthly payments typically will be, which some people need. The tradeoff, however, usually is a higher interest rate. If you’d rather pay less in total over the life of the loan, then the best way to go often is a shorter contract, which provides a better rate of interest but which requires a higher monthly charge. Interest Rate For most people, locking in a lower rate of interest is one of the main reasons to refinance. Many banks will allow you to lock in the percentage you pay, but other options are available for investors, as well. Some people, for example, like a mortgage with an adjustable rate, often because the initial payments usually are initially very low. Others look into 5/1 agreements, which have a fixed rate for the first five years and then switch to a variable one. Your financial goals and circumstances both determine which strategy is right for you when you set up your refinance contract. When you talk with possible lenders, you might hear them talk about “points” in connection with interest. A point is the difference between the current prime interest rate and the rate the bank is going to offer to you, expressed as a percent. If it suggests “prime + three,” for example, it means your interest rate will be three points, or 3%, higher than the prime rate. Point also can refer to all the fees charged, with 1% of the loan amount being one point — a $500,000 contract with $10,000 in fees, for example, would have two points. In either case, ideally, you should keep the number of points as low as you can. PMI and Downpayment As you think about whether you should refinance investment property, you’ll need to consider how much you can put toward a down payment. In general, the more you can offer upfront, the less likely it is that you’ll need to buy private mortgage insurance (PMI), which protects the bank in case you default on the loan. Most banks want you to give 20% before they’ll wave this requirement. Appraisal Many lenders advise borrowers to obtain an appraisal before getting a new mortgage, because the value of the property determines how much the bank is willing to loan. By having a professional attest to what the home would sell for, you have a better idea of how much money you’ll be dealing with and, subsequently, the likely interest rate and monthly payment amount. You typically must pay up-front for the appraisal, but an added benefit of having one done is that the appraiser can explain exactly what is “good” or “bad” about the house, which lets you make plans for improvements that will bump up how much it’s worth. Documentation Once you’re fairly sure you’re going to go ahead with a new contract, you should get all your documentation in order. In short, the lender wants evidence that you really qualify. It likely will ask for proof of income, two monthly checking-account statements, two years of W-2 forms, and a net sheet documenting investments. If you are self-employed, the bank typically will want to see tax returns from the previous two years. Getting a copy of your credit history and score is also important — the lender uses this information to get an idea of your likelihood to repay, and to figure out what interest rate to offer you. Requesting a report also can alert you to any irregularities such as delinquencies and collections that you can remedy for a better contract. Shopping Around Not all banks are created equal when it comes to the terms and conditions of their mortgages. Shopping around is the only way to see where the best deal is, and in some cases, knowing what another lender can offer allows you to negotiate for something better. Although time can be of the essence in terms of getting the loan money, it’s generally better to spend a few days or weeks considering all your options than it is to lock yourself into an agreement you end up hating.
Refinancing in a Down Market More Sharing ServicesShare | Share on facebook Share on myspace Share on google (NewsUSA) - Falling home values are a cause for concern for millions of American homeowners, mortgage lenders and the federal government. To help families dealing with lower home values and other personal crises, the Obama Administration announced the Making Home Affordable initiative that is designed to help between 7 million and 9 million Americans improve the affordability of their mortgage and prevent foreclosure. Understand Your Options There are several programs under the Making Home Affordable initiative. One of these is the Home Affordable Refinance Program (HARP). HARP is a refinance program for homeowners who are current on their mortgage payments, but unable to take advantage of the current low interest rates due to their home's depressed value. The program is also designed to assist borrowers in changing from a risky loan, like a negatively amortizing adjustable, into a more stable 30-year fixed rate. There are several eligibility requirements for the HARP program, however the most important one is that your loan be owned or guaranteed by either Fannie Mae or Freddie Mac, and you must work directly through your lender (the company that currently services your loan). Borrowers interested in knowing if they qualify for a HARP refinance program must contact their lender. You can also obtain general information about HARP, as well as access links to determine whether your loan is Fannie Mae- or Freddie Mac-owned or guaranteed, from the Making Home Affordable web site: http://www.makinghomeaffordable.gov/loan_lookup.html. Before your lender can make you an offer, you will need to fully document your income, which generally requires providing: your W-2s, recent bank statements and pay stubs. The PMI Mortgage Insurance Co. has a helpful mortgage-assessment form at www.homesafepmi.com, where you can input the information your lender will likely require. Given the backlog of requests, the process from phone call to decision may take 60 to 90 days. So, don't be surprised if you don't get an answer right away. And be sure to follow up frequently.
A Guide To Home Loan Refinancing (Infographic) For those who have never been exposed to the concept of “refinancing”, home loan refinancing may seem like a baffling notion. After all, what good could possibly come from getting a new home loan… just to pay off your old one? Wouldn’t you just go back to square one after the whole process? These could be some of the questions you’re asking yourselves, and understandably so. In reality, home loan refinancing is a widely-adopted practice with many potential benefits. Homebuyers far and wide undertake it in order to lower the interest they’re paying on their home loans, reduce their monthly loan repayment amounts, and generally alter their loan terms to better suit their financial needs. In fact, some even refinance to free up cash riding on the inherent values of their properties! To calculate you home loan refinancing possibilities, click here and use the iMoney’s refinancing calculator. In this infographic, allow iMoney to help you understand what home loan refinancing is, what the benefits are, and how you could use it to better your personal financial situation as a homebuyer. - See more at: http://www.imoney.my/articles/a-guide-to-home-loan-refinancing-infographic#sthash.5P3sdGQX.dpuf
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