hat happens when I refinance a on these debts for 30 years. Do you really thinks you can pay per month on a mortgage W mortgage? want to be paying that medical bill for 30 payment. When you refinance your mortgage you are years? Second, your home will be collateral Example: taking out a new loan on your home. The old for the loan. If you can’t make your monthly Gross mo. Income = $1500 mortgage is then paid off and you will owe mortgage payment, you could lose your Times .28 (28%) = $420 payments on the new mortgage. home. The more debt you roll into your – Taxes ($1200) ÷ 12 = $100 – Insur. ($900) ÷ 12 = $75 mortgage, the higher the mortgage payment. = Mo. Payment: $245 hy would I want to refinance my mortgage? Also, the more debt you have in your W This formula may not work for everyone. You There are several reasons you might want to mortgage, the more likely you will have to should look at your own budget and all of refinance. The biggest reason you may want pay for mortgage insurance (an insurance your expenses before you decide how much to refinance is to get a lower interest rate and policy for the lender). This will increase the you think you could pay per month for a lower your monthly mortgage payments. amount of your monthly payment even more. mortgage. You may have higher than normal expenses, such as medical, utility, Before you refinance your mortgage, you Finally, consolidating your debts into a home transportation, school, etc. Also, remember must think about why you are doing it. Are mortgage can severely limit your ability to that some lenders may be willing to lend you you currently paying a higher rate of interest obtain debt relief through bankruptcy, should more money than you can realistically afford on your mortgage than is available now? Do the need arise in the future. to repay. you want to refinance to lower your payments because you are having trouble ow much can I realistically making the payments? These may be good Hborrow? How do I find a mortgage loan? reasons to refinance. You can estimate how much you can If you have a good relationship with your realistically borrow for your home, by using current lender, ask about their loan programs. Are you trying to consolidate all your debts this common formula. Because you are already a customer, they into one loan? Do you need money for may be willing to work with you to keep your repairs? These may not be good reasons to First, take your gross monthly income (before business. refinance. taxes are taken out) and multiply it by 28% (.28). This is your allowable monthly If you don’t have a good relationship with Because a mortgage uses your house as payment for housing that lenders often use in your lender, it might be harder to get a new collateral, you risk losing your home if you figuring out how much they can lend you. loan from that lender. A poor payment are unable to make the payments. You might history will cost you money in higher interest be better off getting another type of loan Next, figure out your monthly real estate rates and higher insurance costs to protect the instead of refinancing your house. taxes by dividing the year’s total real estate lender from nonpayment. taxes by 12. Do the same for your am thinking about putting all my homeowner’s insurance to determine the Make sure you understand all of the costs that Id ebts together into my mortgage. monthly amount of homeowner’s insurance. come with refinancing before you choose a Should I? new lender. You may be getting a lower This may not be a good idea. First, if you get Finally, subtract the monthly taxes and interest rate but have very high closing costs. a 30-year mortgage, you will be paying off insurance amounts from the amount you can all of these debts over a 30 year period of pay per month. That leaves what a lender time. This means you will be paying interest income because the payments may soon W hat is a mortgage broker? become too high for you to afford. A mortgage broker does not actually lend you the money, but finds someone who will lend s there any help for me in the money to you. The mortgage broker Irefinancing my mortgage? charges a fee for this service. These fees can Find out if you are eligible for any be substantial. government programs through the Federal Housing Administration (FHA) or the If you go to a mortgage broker, find out Department of Veterans Affairs. You might what fees are charged for the broker’s be able to get lower interest mortgages with services. It is important to understand that the lower fees through these programs. mortgage broker is not working for you, but Refinancing for the mortgage broker business itself. The Rev 07/02 Code 1620120 mortgage broker may be more interested in Mortgages sending you to a lender who pays the broker’s fees, than in finding a lender who will offer you the best deal. ILS Office Contact Numbers Bloomington: Hammond: hat kind of loan should I get? W (812) 339-7668 There are two basic kinds of mortgage loans (219) 853-2360 1-800-822-4774 available. The fixed-rate mortgage has a Prepared by: predictable cost for the life of the loan. Your Indianapolis: interest rate stays the same, and you will Columbus: (317) 631-9410 Indiana Legal Services, Inc. (812) 372-6918 always know what you will be paying from 1-800-869-0212 http://indianajustice.org 1-866-644-6407 month to month. You can get a fixed-rate loan in 30- and 15-year mortgages. The Lafayette: monthly payments on a 15- year mortgage Evansville: (765) 423-5327 (812) 426-1295 will be higher, but over time you will end up 1-800-382-7581 1-800-852-3477 paying a lot less interest than on a 30-year This is for information only. It is loan. New Albany: not legal advice. For legal advice, Fort Wayne: (812) 945-4123 contact an attorney or a Legal (260) 424-9155 Variable rate mortgages are also called 1-800-892-2776 Services office. 1-888-442-8600 “adjustable rate mortgages” (ARMs). They are used during times of high interest rates South Bend: because they offer a lower initial rate, but the Gary: (574) 234-8121 (219) 886-3161 The production of this pamphlet is made rate can go up over the term of the loan. The 1-800-288-8121 1-888-255-5104 possible by a grant from the Indiana Bar interest rate on the loan will be adjusted Foundation. upward, giving you higher payments. ARMs can be a bad idea if you are on a fixed .