Your Mortgage Knowledge Base

A refinance is a new loan that replaces an existing mortgage — typically to get more favorable terms or payment options. Let’s say you purchased a home with a 30-year fixed rate mortgage at an interest rate of 4.75%. A few years later, you notice that interest rates are hovering around 4.25%. While that 0.5% difference might not seem like much, it can add up to a significant amount of money over the life of your loan.*

Refinance Example:

	30 YEAR FIXED	15 YEAR FIXED
% Down	20%	20%
Sample Closing Costs	$4,800.00	$4,800.00
Loan Amount	$200,000.00	$200,000.00
Sample Rate	4.75%	4.25%
Sample Loan APR	4.957%	4.604%
Est. Monthly Payment	$1,043.29	$1,504.56
Total Payments	$375,588.00	$270,820
Total Interest	$175,588.00	$70,820

The calculation above assumes annual amortization. This calculation is provided as an illustration to demonstrate potential savings. It is not intended to provide investment advice, nor is it a guarantee of applicability or accuracy in regard to your personalized circumstances. Not all borrowers will qualify for the rates listed above. This is not a loan approval. Estimated monthly payment does not include homeowners insurance or taxes. Actual payment will be higher. Annual Percentage Rate (APR) incorporates fees into a single rate so that it is possible to compare loans with different rates, fees or terms. Please seek advice from a licensed loan officer to see if refinancing may be right for you.

*Refinancing may result in higher total finance charges over the life of the loan.

Refinancing is a common solution for homeowners who want to lower their interest rates, adjust the length of their mortgages, change the type of their mortgages, or use their existing home equity to fund a large expense, like a renovation or home repairs, through a cash-out refinance.

You’ll be replacing your current loan with a new one, so it’s important that you have a specific goal when considering refinancing.

The process for refinancing your home will likely be similar to the steps you went through to get your current loan. CrossCountry Mortgage, Inc., doing business in the State of New York as CrossCountry Financing, will look at your income, credit score and the value of your property. If refinancing your home sounds like something that fits with your homeownership goals, then finding the right type of loan is the next step.

After selecting and applying for a loan, the approval process begins. For approval, we must verify your credit, employment history, assets, property value, and anything else required by your particular circumstances. Some programs use information you provided when you first got your mortgage, which helps to streamline the process.

CrossCountry Mortgage, doing business in the State of New York as CrossCountry Financing, offers a variety of refinance loans depending on your situation, financial goals and current mortgage. Here are some programs we have to offer:

• Conventional Home Loans
• HARP Refinance Loan
• FHA Streamline Refinance
• FHA 203(k) Refinance
• USDA Rural Streamline Refinance
• VA Interest Rate Reduction Refinance Loan

It depends on your particular situation. Three major factors should be considered when deciding whether to pay points: 

• How much you can afford to pay up front?
• How long do you expect to make payments on your mortgage?
• What is the length of your loan and how long do you plan to live in the home?

Many people looking for a long-term mortgage opt to pay points to ease the monthly payments over the long term of the loan. People looking at a mortgage with a shorter term or looking to stay in the home for a shorter period of time often opt to make a larger down payment instead of paying points.

You can refinance your home for a number of reasons, most of which typically result in a more favorable financial situation. Some of the benefits of refinancing include:

• Lower your monthly payments: By obtaining a lower interest rate, you may lower your monthly payment – keeping more money in your pocket. Refinancing can reduce your monthly payment initially, but that doesn’t always mean it will save you money in the long run. Fees and interest rates need to be considered when calculating if your new mortgage will save you money over the entire life of the loan. A licensed loan officer will be able to help you decide if refinancing is right for you. We’ll help you calculate at which point you will break even and begin to save.
• Shorten your loan term: Maybe you’re making more money now than you were when you first got your mortgage and can afford to put more money toward it. By shortening your loan term, you’ll pay off your mortgage sooner. Short term means you’ll pay less interest over the life of your loan. An example would be refinancing a 30-year mortgage into a 20-year or 15-year mortgage.

REFINANCE EXAMPLE:

	30 YEAR FIXED	15 YEAR FIXED
% Down	20%	20%
Sample Closing Costs	$4,800.00	$4,800.00
Loan Amount	$200,000.00	$200,000.00
Sample Rate	4.25%	4.25%
Sample Loan APR	4.450%	4.604%
Est. Monthly Payment	$983.88	$1,504.56
Total Payments	$354,197.00	$270,820.00
Total Interest	$154,197.00	$70,820.00

• The calculation above assumes annual amortization. This calculation is provided as an illustration to demonstrate potential savings. It is not intended to provide investment advice, nor is it a guarantee of applicability or accuracy in regard to your personalized circumstances. Not all borrowers will qualify for the rates listed above. This is not a loan approval. Estimated monthly payment does not include homeowners insurance or taxes. Actual payment will be higher. Annual Percentage Rate (APR) incorporates fees into a single rate so that it is possible to compare loans with different rates, fees or terms. Please seek advice from a licensed loan officer to see if refinancing may be right for you.
• Extend your loan term: Maybe you want a lower monthly payment and are willing to extend your mortgage out several years to get it. It’s important to understand that you’ll pay more over the long term in interest, but you’ll have a lower payment each month.
• Get cash out: As you pay on your mortgage, you build equity. Eventually, you can refinance through certain programs to get access to funds from that equity. These funds can be used in a variety of ways, such as paying bills, making a special purchase, improving or repairing your home or paying for college tuition.
• Stabilize an underwater mortgage: As a result of the 2008 financial crisis, many homeowners watched their home values plummet below the outstanding balance on their mortgages. With a HARP refinance, you can refinance an underwater mortgage and regain control.

• Copies of W-2s or tax returns for the previous 2 years
• If you own rental units, provide the most recent rental agreement and tax returns for previous 2 years
• Your last 3 bank statements along with the most recent statements for any mutual funds, IRA/401(k), or stock accounts
• Settlement agreement and divorce decree (if applicable).
• Non-U.S. citizens must present their Green Card or H-1 or L-1 visa.
• Recent paycheck stubs and proof of any other income, like tips, Social Security payments
• Your current mortgage note

These documents may not be all-inclusive, but by having these on hand, you will expedite the application.

• Proof of Income – Find and make copies of your pay stubs.
• Tax Information – Gather your W-2s, 1099s, and tax returns for the last 2 years. If you’re self-employed or an independent contractor, you’ll be required to provide your 1099-MISC information.
• Credit Details – We’ll perform a credit check when you apply.
• Debt Documentation – You’ll be required to provide documentation on your outstanding financial commitments. Gather materials on your current mortgage, car loans, student loans and any other debts.

Points are prepaid interest that you can pay up front. You can pay points to get a lower rate on both fixed rate and adjustable rate mortgages, but the points charged to reduce the rate may vary depending on the type of loan. One point is equal to 1% of the mortgage amount. (Example: $100,000 mortgage amount = $1,000 point)

It depends on your particular situation. Three major factors should be considered when deciding whether to pay points:

1. How much you can afford to pay upfront?
2. How long do you expect to make payments on your mortgage?
3. What is the length of your loan, and how long do you plan to live in the home?

Many people looking for a long-term mortgage opt to pay points to ease their monthly payments. People looking at a mortgage with a shorter term or looking to stay in the home for a shorter period of time often opt to make a larger down payment instead of paying points.

FICO stands for Fair Isaac Corporation. This company is a pioneer and leader in credit scoring. Your FICO score is a number that tells creditors how likely you are to pay off your debts.

FICO and the credit bureaus do not disclose their exact computation methods. However, most credit scores are calculated through models that assign points to different factors of your credit history to best predict future performance. There are many commonly analyzed factors in your credit history, including:

• Payment history
• Employment history
• How long you have had credit
• How much credit you have used compared to how much you have available
• How long you’ve lived at your current residence
• Negative credit/financial events such as collections, bankruptcies, charge-offs, etc.

Raising a credit score is not always easy and not something that can be done overnight. There are several credit best practices that will raise your rating over time:

• Pay your bills on time. This is extremely important. Collections and late payments can lower your credit scores.
• Reduce your credit balances. Maxed out credit cards will lower your credit score.
• Don’t apply for credit often. This reflects poorly on you and your rating.
• Establish credit history.

Yes, errors and fraud should be reported to both the credit reporting agency that provided the report with the error or fraud, as well as the creditor that provided the erroneous or fraudulent information to the credit reporting agency. At this time, Experian and Equifax are only accepting disputes via their online forms. TransUnion handles disputes by phone, standard mail and an online form. We have provided you with information below to access these agencies per myFICO.com.

Equifax:
https://www.ai.equifax.com/CreditInvestigation/home.action

Experian:
http://www.experian.com/rs/fi4.html

TransUnion:
TransUnion Disputes
2 Baldwin Place, P.O. BOX 1000
Chester, PA 19022
1-800-916-8800
http://www.transunion.com/corporate/personal/creditDisputes.page

• Identifying information — Social Security number, date of birth, employment information (these facts are not determining factors in credit scoring)
• A list of debts — how many credit lines have been opened and closed, types of credit lines, a history of how you’ve paid them, loan limits, and current balances
• Public record information — bills referred to collection agencies, bankruptcies, foreclosures, suits, liens, etc.
• Inquiries made about your creditworthiness during the last two years — voluntary and involuntary inquiries.

Interest rates change based on the demands of the market. When a high demand exists for loans, interest rates increase to take advantage of an active market. If demand for mortgages is low, interest rates decrease to entice new customers.

Inflation also has a major impact on mortgage rates. Inflation is associated with a growing economy. As the economy grows, the prices for goods and services increase along with it. This price inflation affects real estate along with everything else, pushing up the price for mortgages.

Lastly, the Federal Reserve has the ability to influence interest rates for the purpose of controlling inflation and employment. It can do this by raising or lowering the discount rate, and indirectly influencing the direction of the Federal funds rate.

Pre-qualification is a determination of the loan amount you’re likely to receive. It is not a guarantee of approval. To obtain pre-qualification, you usually are interviewed by a licensed loan officer who determines the pre-qualification amount. You will be issued a letter with this information that you can present when making an offer on a home. It’s important to understand that pre-qualification does not imply any obligation from the lender that you will be approved.

Pre-approval is more thorough than pre-qualification. To be pre-approved, you must submit an application and verify your credit and financial history. After you receive your pre-approval certificate, you’re in a stronger position to close earlier and negotiate a better price. It’s highly recommended that you seek pre-approval if you are shopping for a home.

A mortgage rate lock is a promise to you from the lender to hold a specific combination of an interest rate and points for an agreed upon time (typically 10, 15, 30, 45 or 60 days) until you can close on your home. Locking in a rate protects you from unforeseen interest rate increases that can occur in the days or weeks leading up to closing, but conversely, if the rates fall, you may not be able to take advantage of the lower rates.

Rate locks are dependent on the type of loan program, current interest rates, points, and the length of the lock. To hold a rate for longer periods of time, you usually have to agree to pay higher points or interest rates.

Yes. An active secondary mortgage market exists in which lenders and investors buy and sell pools of mortgages. If another company purchases your mortgage, it assumes all terms and conditions. A new lender cannot change the rate, payments, or any other aspect of the agreement. You will only have to send payments to the new loan servicer.

In this instance, you’re still obligated to make payments. Usually, a lender that goes out of business is forced to sell their mortgages to other lenders. The terms and conditions will not change, but you will have to send payments to the new loan servicer.

Private mortgage insurance (PMI) protects the lender from the costs of foreclosure. You may be obligated to purchase PMI if you can’t make a sufficient down payment of at least 20%. By purchasing PMI, you will have access to a mortgage without having to make a large down payment, and the lender is insured in the event that you default on the loan.

The price of PMI is inversely proportional to the size of your down payment. The larger your down payment, the lower the cost of PMI will be.

Talk to your loan officer before making a large purchase. Moving money around in your accounts or increasing your debt to income ratio could affect your loan.

Talk to your loan officer if there is going to be a change in your employment. It’s best to have steady employment for at least 2 years and verifiable income when applying for a loan.

Inspections are important to understand the condition of the home. They can also be helpful when it comes time to negotiate with the sellers, in terms of lowering the price of the home, or adding service stipulations to the contract.