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Posted On: 10/31/2012

QUESTION:

We are retired with hardly any income. The mortgage company has said our debt ratio is too high and denied us a loan. Our payments would drop $500 a month if we could modify our existing loan. We are not behind, never missed a payment, have an 800 credit rating, and the appraisal from the lender was $380,000. Our current loan is a fixed, 25-year 5.95-percent loan with a balance of $172,000, with approximately 16 years left. The only debts we have are this principal residence and a vacation home. A few free-and-clear rentals pay all our expenses, taxes, insurance and upkeep. Is there anything for us?

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ANSWER:

You plainly have sufficient income to maintain an excellent credit rating, and you have substantial equity both in your home and in the “free-and-clear” rental properties that generate a positive income.

The lender has little immediate reason to favor mortgage refinancing because your loan payments are made in full and on time, plus the interest rate is well above today’s levels.

To get a better mortgage, you have to entice lenders to see the benefits of a refinance – their benefits, not yours.

The first approach is to contact the current lender and explain that you want to refinance. Say that you and the lender have done business for years, and gosh, you would hate to go elsewhere. Plus, if the loan is refinanced, the lender will have a new asset that can be re-sold in the secondary market.

Translation: The lender will make good money paying off the current debt, originating a new loan and then selling it at a profit. If you go elsewhere, the lender will lose out.

The second approach is to go elsewhere. Get both a replacement loan and a replacement lender. Given your financial profile, a lot of lenders would love to hear from you. Consider a new 15-year mortgage rather than a 30-year loan.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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