When should I search for refinancing on loan with high interest and an ARM with penalties?

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I’m trying to fix my credit; my ARM expires in May on my house mortgage. I pay over 8%. There is a high penalty for prepayment. When should I begin contacting companies to get quotes to refinance-before or after the ARM date? I’m not sure how lenders operate.

I am planning on refinancing my car loan but I think my current mortgage payment will affect the banks decision. So my question is, when they ask what my mortgage is, should I include escrow or just principal and interest?

6 Comments
  1. Reply
    Akbar B
    February 23, 2011 at 10:38 am

    Start three weeks earlier and get ready to refinance on the day that your ARM expires and not a day before as you will be hit with the prepayment penalty.

  2. Reply
    pioneerlendersmod
    February 23, 2011 at 11:27 am

    You can get quotes starting in April so that whatever rate you get quoted is still applicable by the time you are ready to refinance….usually 30 days or so to get the best rate. But definetly, don’t get hit with the prepayment penalty – it’s not pretty. Keep things like prepayment penalties, fees, points, miscellaneous junks fee, etc, in mind when you refinance so that you can avoid them. If you have good credit, you should have no problem.

  3. Reply
    www.lendersgreen.com
    February 23, 2011 at 11:50 am

    You should start now at least working with a Mortgage Consultant like myself. I say that because we should be working on your credit now and diligent. That way when you are ready to refinance you will qualify for the best program and low rate. You cant wait too late because resolving credit issues can take some time. Thanks

  4. Reply
    R1
    February 23, 2011 at 12:01 pm

    In fact, the sooner you start, the better off you’ll be when it comes to switch over to your new fixed rate mortgage. And remember, a prepayment penalty is just that, a penalty for paying off the mortgage early. There’s no penalty for being a responsible planner!

    Mortgage refinancing, especially when you are going from an adjustable rate mortgage to a fixed rate mortgage in the current market, is very much about having a strong application. This means getting your credit scores up and saving as much money as possible to keep your bank balances high, so that when you apply for the mortgage a few weeks before your rate goes up, you not only have an approval for the refinance, but you are locked in a for the best rate possible. You can be approved for a mortgage well in advance, just ask for a longer rate “lock” period once you’ve been approved for the refinance. Lock periods are normally 15 to 30 days for most refinances, however 45, 60, 90 or even 120 day locks may be available depending on your personal situation, although longer locks sometimes require an upfront “lock fee”.

    Improving your credit can consist of simply paying down the balance on cards which are used up to over half their limit, writing letters to have erroneous items on your report removed, or otherwise taking small, inexpensive actions which can greatly improve your credit score. In the mortgage industry, we employ proprietary systems which allow us to simulate several small actions and estimate how much your credit scores can be improved. For maximum effect, contact a mortgage company specializing in this type of computerized simulation 60 days before you want to refinance, so all the changes have enough time to reflect on your report by the time your application for refinancing is underwritten.

    The reason I mention saving money is so that you can document a history of having strong liquid cash reserves, which makes qualifying for a loan so much easier than it would be otherwise. Liquid reserves are ideally Savings or Checking accounts, although CD’s, investment accounts, and in some case retirement accounts may be considered reserves for the purposes of refinancing. Cash reserves can make up for weaker credit, and in some cases can allow you to qualify for a much, much lower mortgage payment than you would otherwise receive.

    You’ll want to have your application processed and underwritten beginning at least 30 days before your pre-payment penalty period expires. Once approved, this gives you plenty of time to provide any supplemental documentation the lender may request. Once your loan is cleared for closing, you can schedule the closing so that your loan funds the day after your pre-payment penalty expires, which is generally safer than doing it the day of expiry.

  5. Reply
    Steve D
    February 23, 2011 at 12:27 pm

    Everything, PITI – the goal of asking is to get an idea of your monthly outgo – plus, they will get they info anyway when they pull your credit report, so it looks better if you are completely honest.

  6. Reply
    chatsplas
    February 23, 2011 at 1:03 pm

    Unless you pay it separately, they really want the whole thing: PITI.

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