Refinance a Home Mortgage Into One Loan

If you put two names on your mortgage documents at the beginning, only to discover the poor credit rating of your spouse, you are not alone. Many people realize after the fact that they could have saved thousands of dollars if theirs was the only name on the mortgage. Their partner in life was an anchor dragging down their financial sales. Refinancing mortgages can fix the problem. You will of course have to pay closing costs again. However, if your credit score trumps your partners well enough, the refinancing mortgage may pay for itself. For example if your credit score is 760 and your partners is 640 it may make as much as .75% difference on your loan. That may not seem like much, but in just three years it is a three thousand dollar difference on a thirty year, $170,000 loan. Put it in monthly terms? $80 a month stays in your pocket. 

The good refinancing rule of thumb is that you should make your money back on the loan within 3-5 years. If you can't make back all the closing costs for refinancing within 5 years' time you should reconsider refinancing. Why? Here's why:

1. Think back five years. How different is your current life from what you expected it to be then? How different is the economy from what people expected it to be then?

2. You just cannot predict the changes in life that may come in five years. That's about as far down the road as any one can see with any honesty. Take a five year window and if you stay longer you make more.

3. The average homeowner in America moves in six years. If you haven't covered your investment by then, on average you will lose money. 

Here's how you can know if it will pay off:

1. Count up the amount of principle you will have paid off in the next five years if you keep your current loan. Look up your loan papers and there should be a payoff schedule that shows you exactly how much that is. Let's just say it's $14,000 for example. 

2. Count up the amount of principle you will have paid off in the next five years if you refinance a home loan into one name. Let's just say its $12,500

3. Subtract the amount of principle from your first loan in five years (#1) from the principle to be paid in five years on your second (#2). In our example, it would be $2500.

4. Now add in the amount of money you will save on lower payments if they are lower. If your payments are $3000 lower in this example, you would be at $5500. 

5. Subtract the closing costs on the refinancing mortgage. Closing costs on a refinancing loan of this type might be around $2200. 

If the final number is positive, do the loan. In this example the final number is $3300. Go skipping and laughing to the bank to sign the loan. Sure you will pay $2200 up front. But you get $80 of that back every month. That's a 43% return on your money for the first year. You won't find that in the stock market. 

If you are refinancing a home mortgage into one name, you need to think about a few things.

1. Make sure your lender won't hassle you about whose name is on the title. Most lenders will wink and nod and let both names be on the title and only one name on the mortgage. With increasing scrutiny on loans though, this may not fly.

2. If the lender balks, sign a quit claim deed at your county courthouse to put the house in the person with the best credit's name. As soon as your loan is signed, go back to the courthouse and quit claim it back into both names. You do not want only one name on a house if you end up in divorce court. 

3. But we love each other and would never divorce! What if your partner has an affair? No one expects it to happen to them. But it happens. Be smart, get the home in both names on the title. 

For more information on refinancing mortgages see related articles on this page.