Finney's formula to lower your mortgage payment


The economic downturn tightened lending standards to the point of being simply ridiculous. Well, things are loosening up now and it is time for you to get with the program.

A third of all homeowners have enough equity to refinance their homes, but don't.

"They throw in the towel, they think that's it. They won't be able to borrow money, they won't be able to refinance because it is very difficult because lenders don't lend money, but that is not the case," said Adrian Nazari, the founder and CEO of

If you know the tricks you can save tens of thousands of dollars.

"If you want to beat the banks at their game, you need to know how they make credit decisions," said Nazari.

"It is like a Rubik's Cube and you're fitting all the little slots in," said Serena Greening, a San Francisco-based mortgage broker. "The lender decides how they are going to give you a rate based on your equity in your property, if your income is good, and if your credit score is good."

OK, let's start with equity. If you bought your home before the downturn, your interest rate is probably 6 percent or above. Our example will be a median priced home in San Francisco which now goes for $650,000. If you have 20 percent equity your loan amount is $520,000 and the monthly mortgage payment is around $3,117. A fairly simple refinance at 5 percent today and your monthly payment drops to $2,791. It's nice, but just the beginning. For instance, has your credit score been hurt by the down economy?

"A five to 10 point difference on your credit score could mean thousands of dollars," said Nazari.

The usual advice is to pay down your credit cards, but there's an easier way. Increase your credit limit. The credit score problem isn't with how much you owe, but with how much you owe versus available credit.

Call your credit card companies and ask for a higher credit limit. Get your usage below 30 percent and you could be looking at another half percentage point rate drop. Now your payment is $2,634.00 a month. Most know 20 percent equity gets you a loan, but here's the secret: 21 percent equity can get you a great loan.

"As an example, let's say you want to borrow $80,000 on a $100,000 home. If you knew that rule and you were able to borrow only $79,000 to stay below the 80 percent, you could get a rate that will be under 4 percent today," said Nazari.

You see, once the loan to value drops below 80 percent, some banks show the love with an additional rate drop. If you have the equity, or in our example can pay down to $513,500, you could get that 4 percent rate and your monthly payment drops to $2,451.00 a month. You've just saved $666 every month -- a devil of a deal.

Now as they say, your mileage could vary. However, the idea is to start the process, then start looking for those little tweaks that will make you a lot of money.

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