Is It Time To Refinance - Or Not?
Whether 'tis nobler in the hearts and minds of men to suffer the slings and arrows of the refi
?
Great question. With interest rates at a four-decade low for the last nine weeks should you and more importantly can you refinance your current mortgage? To help set your mind somewhat at ease, first note that yes Virginia banks are lending, however it is not as easy to get a loan as it had been in fact lenders are making it quite hard to get approved.
Eighteen months of financial history, including tax returns and pay stubs used to be sufficient. Now everyone is requiring 2 years worth of documentation and proof. Keep in mind that the best rates are only going to those with the high credit scores and clean credit history. Unfortunately there are many would-be borrowers who have suffered a job loss or pay reduction. If your current income falls below the minimum required to qualify, you won't be able to take advantage of today's low rates.
However even those up-side down or under water can get refinancing. It isn't impossible to do but it certainly isn't easy either. There will be those who are not able to refinance because they do not have any equity, however help is still available to some in the form of Home Affordable Mortgage Program, HAMP, if you have a loan that is owned by either Fannie Mae or Freddie Mac. If your loan is owned by either of these you can refinance with out having any equity.
What if you recently refinanced? Recent interest rate drops have enticed homeowners who already refinanced to think about refinancing again. Is that a good idea? It depends on how long it would take you to recoup the refinance closing costs, including title insurance, points and escrow and appraisal fees. Refinancing an average loan costs about $3000. How many months of lower payments will it take for you to "get back" that amount?
New lower monthly mortgage payments do not necessarily translate into lower overall costs. Every time you refinance, you are restarting the clock on your loan. If you've been paying on your current mortgage for 10 years, you probably have another 20 years until it's paid off. If you get a new 30 year loan, your payment will be significantly lower, but you're starting the 30 years over. All that money you're paying for the years when your house otherwise would have been paid off could outweigh the amount you save with a lower interest rate. Consider refinancing in to a 15 or 20 year loan.
You have to do your homework on mortgage financing, just like any other major purchase. Ask around. Ask family, friends and co-workers who they refinanced through and what interest rates they got. Part of the problem with the housing meltdown was people were borrowing and not really doing their homework. You are getting a loan and you have to repay the loan or you could lose your home so it is vital that you read and understand all the documents that come with your mortgage. Ask questions if there's something that you don't understand.
If you educate yourself, do the research to know what you're getting into and think about the decision sensibly, you could save a lot of your hard-earned money in the long run.
by: Shane Hurley
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