How to refinance to today’s low mortgage rates when you don’t qualify

Many borrowers would like to refinance to take advantage of today’s low rates but for a variety of reasons – from being under water on their loan to owning a condo in a mixed use building – do not qualify.

Now there’s a Do It Yourself solution, which takes just a few minutes.

Intrigued? Read on.

This week I discovered a new website, www.hsh.com, and this is how they describe themselves:

“HSH.com® is the nation’s largest publisher of mortgage and consumer loan information. We’ve been in business for 30 years, so we think we’ve earned our reputation as the best source for current and accurate loan information.”

In addition to the standard mortgage payment calculators, HSH has one that I think is very helpful for the DIY refinancer.

We all know that making extra payments each month shortens the life of a loan, but HSH provides a calculator that allows you to target an effective mortgage rate and then shows what additional payment would be needed each month to achieve this. This is the link, with an explanation:http://www.hsh.com/lowerrate-prepayment-calculator.html

As an example I put in a real situation I know about, where a homeowner bought a condo in a mixed use building and cannot refi. He is currently paying 5% and is very frustrated! He has been making additional monthly payments from time to time, but that is very different from knowing what additional payment is needed effectively to lower his interest rate to a level that will make him feel that he has taken advantage of today’s low rates. By using HSH’s calculator he is able to see that an additional $200 per month payment would effectively reduce his interest rate to 3.75%.

He would, of course, be better off if he could refinance to a lower rate, but he can’t. So this is an alternative.

What is happening here is that by making additional payments each month the homeowner is shortening the life of the loan. I have written before (don’t make just the minimum payment) pointing out that a mortgage is in many ways like a credit card  (only at much lower interest rates) on which the borrower pays only the minimum due each month.

Ideally, homeowners today will refinance AND make additional payments to shorten the life of their loan. That is the way to financial freedom.

HSH’s calculator now allows a homeowner who cannot refinance for whatever reason to target an interest rate and adjust her payments accordingly.

And there is one other benefit: she can tell her friends she “refinanced” her loan to 3.75% and it didn’t cost her a penny and took about two minutes: the time it took to go into her bank account online and set up the extra payment each month. After that she will no longer  be frustrated at not being able to take advantage of today’s low mortgage rates.