Typically people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing can be used as a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance.

However, if you are looking to save money, try this calculation:

• Calculate the total cost of the refinance
• Calculate the monthly savings
• Divide the total cost of the refinance (#1) by the monthly savings (#2).
  This is the "break even" time. If you own the house longer than this, you will save money by refinancing. Refinancing is a complex topic and is best to consult a mortgage professional.

A rate lock is a contractual agreement between the lender and buyer. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock.

A mortgage broker counsels you on the loans available from different wholesalers, takes your application, and usually processes the loan which involves putting together the complete file of information about your transaction including the credit report, appraisal, verification of your employment and assets, and so on. When the file is complete, the lender "underwrites" the loan.

If you are a reasonably astute shopper, you will probably do better dealing with a mortgage broker. Mortgage brokers do not add any net cost to the lending process, because they perform functions that would otherwise have to be done by employees of the lender. Furthermore, because mortgage brokers deal with multiple lenders -- in a typical case, 25 to 30, sometimes more -- they can shop for the best terms available on any given day. In addition, they can find the lenders who specialize in various market niches that many other lenders avoid, such as loans to applicants with poor credit ratings, loans to borrowers who do not intend to occupy the property, loans with minimal or no down payment, and so on.

Both income and assets are disclosed and verified, and income is used in determining the applicant's ability to repay the mortgage. Formal verification requires the borrower's employer to verify employment and the borrower's bank to verify deposits. Alternative documentation, designed to save time, accepts copies of the borrower's original bank statements, W-2s and paycheck stubs.

Stated income/verified assets: Income is disclosed and the source of the income is verified, but the amount is not verified. Assets are verified, and must meet an adequacy standard such as, for example, 6 months of stated income and 2 months of expected monthly housing expense.

Stated income/stated assets: Both income and assets are disclosed but not verified. However, the source of the borrower's income is verified.

No ratio: Income is disclosed and verified but not used in qualifying the borrower. The standard rule that the borrower's housing expense cannot exceed some specified percent of income, is ignored. Assets are disclosed and verified.

No income: Income is not disclosed, but assets are disclosed and verified, and must meet an adequacy standard.

Stated Assets or No asset verification: Assets are disclosed but not verified, income is disclosed, verified and used to qualify the applicant.

No asset: Assets are not disclosed, but income is disclosed, verified and used to qualify the applicant. No income/no assets: Neither income nor assets are disclosed.

It is the list of settlement charges that the lender is obliged to provide the borrower within three business days of receiving the loan application.

It is an upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., "2 points" means a charge equal to 2% of the loan balance. Understand that a trade-off exists between interest rates and points. Most borrowers pay at least one point on the front and one point on the back when they close on a mortgage loan. One point is equal to 1% of the loan amount. Lenders are usually willing to let you "buy down" the interest rate if you pay more points upfront.

This is the process of determining whether a customer has enough cash and sufficient income to meet the qualification requirements set by the lender on a requested loan. A pre-qualification is subject to verification of the information provided by the applicant. A pre-qualification is short of approval because it does not take account of the credit history of the borrower.

Do not confuse a pre-approval with a pre-qualification. During the pre-qualification process, a loan officer asks you a few questions and hands you a pre-qual letter. The pre-approval process is much more complete.

During a pre-approval, the mortgage company does all the work of a full-approval, except for the appraisal and title search. When you are pre-approved, you become like a CASH BUYER and have more negotiating clout with the seller. In some cases (especially in multiple-offer situations), having a pre-approval can make the difference between buying a home and not buying a home. In other instances, home buyers have been able to save thousands of dollars as a result of being in a better negotiating situation.

Many mortgage companies will pre-approve you at little or no cost. They typically will need to check your credit and verify your income and assets.

We must first ask the more general question, "Why do interest rates change?" It is important to understand that there is not one interest rate, but many interest rates.

Prime rate: The rate offered to a bank's best customers.

Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate)
Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.

Treasury Bonds: Long-debt instruments used by the U.S. Government to finance its debt. Treasury bonds comes in 30-year denominations.

Federal Funds Rate: Rates banks charge each other for overnight loans.

Federal Discount Rate: Rate New York Fed charges to member banks.

Libor: London Interbank Offered Rates. Average London Eurodollar rates.

6 month CD rate: The average rate that you get when you invest in a 6-month CD.

11th District Cost of Funds: Rate determined by averaging a composite of other rates.

Fannie Mae-Backed Security rates: Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly.

Ginnie Mae-Backed Security rates: Ginnie Mae pools large quantities of mortgages, secures them and sells them as Ginnie Mae-backed securities. The rates on these securities influence mortgage rates on FHA and VA loans.


Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates. If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates. When the economy is expanding there is a higher demand for credit, so rates move higher, whereas when the economy is slowing the demand for credit decreases and so do interest rates.

This leads to a fundamental concept:

Bad news (i.e. a slowing economy) is good news for interest rates (i.e. lower rates).

Good news (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).

A major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing. When the economy is strong, there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.

Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages. The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates. For example, one lender may be forced to close additional mortgages to meet a commitment they have made. This results in them offering lower rates even though interest rates may have moved up!

The average American gets a new mortgage once every seven years. Maybe you're buying a starter home or you transfer a lot with your job or you plan to pay your mortgage down significantly over the next 5 to 10 years. For whatever reason, you probably won't need a mortgage for 30 years. Even if you're not sure how long you will own your home, if you don't think you'll be there 30 years you probably don't need a 30-year fixed rate mortgage. That's because when you move, you'll need to get another mortgage. And when you do, your mortgage rate will be whatever rates are at that time.

"30-year fixed rates are at historic lows." and so are rates on ARM’s. ARM rates can be almost 2 percentage points cheaper than 30-year rates. Reality is that 30-year fixed mortgages are some of the most expensive mortgages available. Instead of paying the same high rate for 30 years, pay a lower rate for a mortgage that has a fixed rate for a shorter time. Ideally, you want to fix your rate for the amount of time you will actually live in your house or plan to pay off your mortgage.

If you pay extra for a 30-year fixed term when you don't need a term anywhere near that long, the extra interest you pay every month is wasted. So, how can you minimize the amount of interest you pay on your current mortgage?! To see how much you can save try our calculators.

Adjustable Rate Mortgages have a fixed rate for a specified period of time, usually between 1 and 10 years. After the fixed period, the rate can adjust. For example, if you see a mortgage that's a 5/1 ARM, the first number, 5, is the number of years the initial rate stays fixed. The second number, 1, is how often the rate can adjust after the 5th year, in this case, annually. (So a 3/3 has a fixed rate for 3 years then adjusts every 3 years after that.) Just like with a fixed-rate mortgage, you can still plan to pay the mortgage off over a long time, up to 30 years, but the rate is initially fixed at a lower rate for a shorter period and then it adjusts annually after that.

Banks can't just change the rate after the initial fixed rate period to whatever rate they like. The rate adjusts based on a financial index. Banks then add a margin that is specified upfront and stays constant. So if the 1-year Treasury Bill at the end of year 5 of a 5/1 ARM is 1.75% and the bank's margin is 2.50%, your rate for year 6 would be 4.25%. The rate can be higher, lower or the same depending on where the Treasury Bill is. Every year after that, the mortgage automatically adjusts at the Treasury Bill plus the margin.

It sounds like rates can still change a lot once the initial fixed period ends but there are usually both annual and lifetime maximums, or "caps", on how much the rate can change. With the 3/1 Orange Mortgage, the rate can adjust - up or down - a maximum of 2% annually after the fixed term ends, and 6% over the life of the loan. On our 5/1 or 7/1 Orange Mortgage the initial rate can adjust - up or down - a maximum of 5% in the first year after the fixed term ends, and then 2% annually with a maximum, or cap, of 6% over the life of the loan. The important thing to remember is that your rate can go up, down or stay the same. It can change annually after the fixed period only if the 1-year Treasury Bill changes.

A great way to save money is to pick a term for the ARM that is close to the time you'll need the mortgage. Let's say you expect to be in your house less than 7 years or plan to have your mortgage paid down significantly within that time. Rather than wasting money paying a higher rate for a 30 or even 15-year fixed mortgage, choose a 5/1 ARM, where your rate is set for 5 years - and then adjusts automatically each year based on the Treasury Bill rate after that. If you move, you can shop around for the very best.

Each of the three major credit reporting agencies -- Equifax, Experian, and TransUnion -- maintains information about you and your credit history. Lenders, employers, landlords, and service providers buy that information in the form of a credit report to help them decide whether to approve your application for a loan, job, or housing.

A credit score is a rating used by a lender to estimate the risk a company incurs by lending you money or providing you with a service. The higher the score, the less risk you represent. Many lenders consider your credit score in conjunction with other factors, such as your annual income and how long you've held your current job. Many different formulas are used to calculate credit scores, but most are based on the following factors, which each lender weighs differently:

Payment history: A record of late payments on your current and past credit accounts will lower your score.

Public records: Matters of public record such as bankruptcies, judgments, and collection items may lower your score.

Amount owed: Owing too much will lower your score, especially if you're approaching your total credit limit.

Length of credit history: In general, a longer credit history is better.

New accounts: Opening multiple new accounts in a short period of time may lower your score.

Inquiries: Whenever someone else gets your full credit report for example -- an inquiry is recorded on your credit report. A large number of recent inquiries may lower your score.

Accounts in use: Too many open accounts can lower your score, whether you're using the accounts or not.

Keep in mind that raising your score is just like shedding those extra pounds: It requires time and patience and there is no quick fix. The best approach to restoring your credit is to manage it responsibly over time. If there are errors on your credit report it is possible to use a rapid rescoring method.

Here are useful steps you can take, but be patient if your score needs real improvement.

Obtain a copy of your credit report and review it for mistakes. Scores range from 300 to 850, with 720 being the number to shoot for.

Pay your bills on time. But if there's a late notice on your credit report, ask the lender to remove it as a goodwill gesture. If you dispute an inaccuracy, it will stay on your report until it's resolved but not factor into your score.

Use less of your available credit. Even if you pay off your balance every month, try to avoid using more than 50 percent of your limit on any one credit card.

Pay off debt rather than moving it around. The best way to improve your score is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.

Credit cards can have a positive impact on your score if you manage them responsibly. If you make your credit card payments on time, it will help raise your score and establish your credit history.

The Fair Credit Reporting Act (FCRA) is a federal law that regulates how credit reporting agencies use your information. Under the FCRA, credit reporting agencies are required to give you your credit report upon request. A report may cost up to $9, but you're entitled to one free report every 12 months if you've been denied credit in the past 60 days, if you're unemployed or on welfare, or if you're a resident of Colorado, Maryland, Massachusetts, New Jersey, or Vermont. Georgia residents can get two free reports each year.

Many credit reports contain errors. If you find one, take the steps listed below to fix it as soon as possible.

Step 1: Contact the creditor regarding the problem

Step 2: Contact credit reporting agencies

Step 3: Ensure that the error is fixed

Step 4: Write a statement if you cannot resolve a disputed item. You have the right to attach a 100-word statement, free of charge, explaining the nature of your disagreement. Your statement will become part of your credit file, and will be included each time your credit file is accessed.

While rate is important, you have to look at the overall cost of your loan. This includes looking at the APR, the loan fees, as well as the discount and origination points. Some lenders add origination points into their quoted points while other lenders add an origination point in addition to their quoted points. So when one lenders says 2 points they mean 2 points, whereas another lender means 2 points plus 1 origination point.

The cost of the mortgage, however, cannot be your only criterion You must also feel comfortable that the loan officer you are dealing with is committed to your best interests and will deliver what they promise. Often, the company that has the absolute lowest quoted rate may not be the best company for your mortgage business.

If you decide to refinance, it helps to estimate the break-even point it takes for the refinancing decision to pay off. The break-even point is the number of months you need to live in your home after refinancing in order to recover the costs.

For example, if you pay $2,000 in closing costs to refinance and you lower your monthly payments by $100, it would take 20 months to reach the break-even point if you were to calculate it on a straight-line basis ($2,000/$100).

Say you bought your house five years ago. You borrowed $125,000 at a 10% fixed rate for 30 years. Your monthly payments for P+I are $1,097. You're thinking of refinancing your loan balance of $120,718 at today's lower rates. In either case, you want a 25-year loan, since you plan to be retired and living on less then.

The table below shows you can cut your monthly P+I payments to $1,013 if you can refinance at 9%. This is a monthly savings of $84 ($1,097-$1,013). If you face $2,000 in closing costs, you will break even if you live in your home an additional 24 months on a straight-line basis.

Let's look at another example. Say you decide halfway through your loan term to refinance. With an 8% interest rate, your monthly P+I payments on a refinanced loan balance of $102,083 are $976. This saves you $121 a month. Now your break-even point is nearer since you can allocate the same closing costs over fewer months. On a straight-line basis, you can now break even after 17 months.

In reality, a break-even analysis is more complicated. But a straight-line calculation gives you a reasonable estimate. One common rule of thumb is the 2-percent rule, which says that refinancing is a good deal if you can lower your mortgage interest rate by at least 2 percentage points. But other factors ultimately affect your decision, such as how long you continue to live in the home. And as mortgage rates go lower, this rule of thumb is less and less meaningful.

An interest only mortgage may not seem to make much sense at first. After all, on an interest only mortgage, you only pay the interest for a specific amount of time - up to several years. That means that for the first several years, you are not paying off the base sum of your mortgage. If you have an interest only mortgage of $100 000 that has an interest only term of five years, for example, at the end of five years you will still owe $100 000. That initial sum will remain untouched by your interest payments. After the no interest term, you will be expected to start paying larger sums each month in order to pay off both the interest and the loan sum. With an interest only mortgage, you are still responsible for the entire borrowed amount - only the payment terms are slightly different than with a traditional mortgage. Many homeowners find this very intimidating, since they feel they should be paying off their mortgages as quickly as possible. A interest only mortgage, however, can save you money in the long run and can be an excellent financial decision - when used properly.

Of course, if you spend the money you save on monthly payments on an interest only mortgage as disposable income, you really will be behind. However, if you use the lower monthly payments you can get with an interest only mortgage to invest or pay off debts, you may end up ahead. The truth is, an interest only loan offers lower monthly payments for a specific term - while you are paying interest only. If you buy a home that needs repairs or work, you can use this extra money to make repairs which will raise your home equity value anyway. You can also invest the savings, building up a nest egg against loss of employment or other problems that may affect your ability to repay your loan. Some people use an interest only loan to start up a house - after all, the buying of a house often creates all sorts of expenses that must be seen to. Some homeowners even use the money they initially save on an interest only loan to pay off debts. If you have many high-interest debts such as credit card debts, this can make a great deal of sense, since over time high interest debts will cost you more in interest than an interest only mortgage.

If you need to borrow money, home equity lines may be one useful source of credit. Initially at least, they may provide you with large amounts of cash at relatively low interest rates and they may provide you with certain tax advantages unavailable with other kinds of loans.

Closing costs. Your closing costs include points. The IRS also calls these mortgage points, discount points or origination fees. Lenders that specialize in refinancing typically charge 1 or more points, with 1 point equal to 1% of the loan amount. Points are usually the largest closing cost. You should also expect to pay for other expenses directly related to processing and approving your application. These costs may include fees for a credit report, title search, title insurance, appraisal and recording a new mortgage lien.

Application costs. Some lenders may charge an application fee to refinance. Paying a loan application fee is something only the most desperate of loan applicants should face. If you have a good credit history, you should be able to avoid paying a loan application fee.

Escrows. The title company and lender will usually ask that you pay one year home insurance in advance. You can often request less if that is more desireable for you. Addtionally, since taxes are paid in arrears, you will also pay some taxes in advance for your escrow and taxes from the beginning of the year until your date of closing. Additionally, the seller of the transaction will also be required to pay their prorated amount of taxes due. It seems like a lot of extra payments.

However, it provides the lender with a comfortable escrow to initiate you account with and buyers are often refunded the unused amount at the first year’s escrow analysis if the amount retained does not match the amount due. Less frequently, when the escrow is short, you will be requested to pay the difference or your monthly rate will be adjusted up to make payments on the amount required to provide one years taxes and insurance in accordance with your escrow agreement.

Buyer services are always free and 95% of the buyers come from Realtors for that reason alone. Although we pride ourselves as a full service brokerage and can provide a menu of services depending on your needs, it is essential that you market your property wisely, take advantage of the first two weeks on the market, insure your property gets the highest price, close the property legally and avoid the common pitfalls of a contract. For buyers, Realtor representation often results in lower prices through skilled negotiation, a simpler process and professional representation for your exclusive interests...and at no cost to you! By being a full service brokerage, we prequalify buyers and avoid the #1 pitfall to any contract- buyer incompetence. For sale by owner (FSBO's) and buyers engaging in those transactions all expect a reduction in price equivalent to an agent so why not have someone representing your best interest if you are a seller or buyer? Additionally, Realtors want to know if they are going to spend the time driving a client around that they will be compensated for their time, just like everyone else who works. When you property goes on the MLS, Realtors know their commission is protected. Without that, they will go out of their way NOT to show FSBO's so their time remains valuable and their commitment to selling or buying a home is matched by their client’s commitment to them. Using a Realtor provides you the competitive edge, timely information and representation in a transaction which more often than not pays for itself many times over.

We at Boulder Financial abide by and strive to perform under the highest of ethical standards. We understand that at times there are clients of ours that have had bad experiences with past Realtors. First and foremost, we are committed to changing your perception and strive to exceed your expectations and commitment. It is important to talk to your new Realtor about what your problems were so we can together avoid them in the future. In worst-case scenarios, the real estate commission and mediation is available to assist you and all Realtor’s code of ethics dictates mediation and accountability, so you can count on our industry to be accountable. We are licensed and insured and that is your assurance.

Get prequalified! A prequalification letter is simple and takes only a few minutes. However, in a competitive market, a prequalification letter with your offer is mandatory. If you plan way in advance you can even get qualified, which is a lengthier process up front versus during the contractual process. Work on your credit and fine tune it so you get the highest FICO score and the best rate possible. Even the best of one’s credit can improve…learn how and make it happen. (Everything is great.)

You can make money and save money investing in real estate in several ways. Call us for your free 30 min. consultation and we will be glad to apply your scenario to a long term plan and provide a current analysis so you know where you are coming from and where you are going. Although we are not tax accountants or an attorney, we partner with professionals including 1031 qualified Exchange Intermediaries to insure you maximize your gain and trust us without question and enough to come back over the years. We love referrals and specialize in creative finance so whatever your goals are, we can accomplish them. Whether you are buying under market, being a landlord, improving your property, strategizing with taxes, counting on market gain, or performing repairs or applying your expertise, we can structure the path to your real estate goals so you succeed and your real estate serves as your retirement.

Boulder Financial clients choose and refer us because we are committed to their goals and always work in there best interest. With over a decade of experience, reputation and results, we engage in technology that streamlines our process and provides a greater degree of success. Although you do not need to employ all of our services to use one of our services, we work closely in the office so your deal is smooth, painless and lucrative. As a full service brokerage, we consider your whole picture and advise how you can maximize your gain. We are knowledgeable of all facets of real estate and have the testimonials to share with you upon request. Due to our high retention of clients, we know we are doing something right and are eager to share our knowledge and expertise with you to exceed your personal goals with your next real estate transaction. When you succeed, we succeed!