There are a lot of advertisements right now about refinancing mortgages into lower interest loans. Some of the rates are less than 5 percent. What considerations should homeowners take into account when refinancing at this time?
Define your goals !
Many of the general rules of when to refinance have gone out the window with the recent developments. Values have come down but the historically low interest rates have many homeowners pondering their options. As with any substantial financial decision, a specialist in the field should be consulted regarding your specific situation.
That being said, here are some things to consider before you refinance:
Purpose and or goal:
Rate and term refinance is used to lower monthly payments without paying off any additional debt or walking away with “cash in hand.” A cash-out is when equity above the amount of the current mortgage is extracted with the new mortgage. Clearly define which you are considering.
Monthly savings vs. cost of refinance:
A time-to-recover cost formula can be applied. If your potential savings is $300 a month and refinance costs are $3,000 it will take ten months to “break even.” Also consider additional monthly savings if you are planning on taking cash out to pay off other debt.
Potential changes of current rate:
If you have an adjustable rate that will change in the near future, you might consider locking in at today’s low rates. Even if your current rate is great, a possible change to the upside may warrant locking in now.
Potential changes in income/employment:
If you face a possibility of furloughs or layoffs in the near future, it might make sense to try to qualify now before the change in income takes affect.
Changes in home value:
Yes, values are down. There is a chance that in some areas pending foreclosures could force values down even further. Appraised value has a large influence on ability to qualify for refinancing. Talk to a mortgage professional now to determine whether your area is at risk for further value reductions.
Unexpected need for cash:
Sometimes the home is the best available resource for one-time big expenses such as education. Always consider the cost of funds from other resources before making your decision.
Availability of “short window” financial opportunities:
If you have substantial equity, many are finding the lower prices and lower interest rates are creating a prime opportunity to use equity to purchase a rental or second home. Talk to your mortgage professional and Realtor to explore this “perfect storm” investment possibility.
Reverse mortgage for seniors:
A type of refinance for homeowners over the age 62 that can be used to eliminate mortgage payments and possibly make equity available in the form of lump sum, credit line or monthly payments. This is a complex product that should be considered only after consultation with a reverse specialist.
When shopping for the best rate available, keep in mind that interest rates change daily and sometimes several times a day. Advertised rates may not apply to your situation. Variables that influence actual note rate include: FICO score, loan to value, loan amount, occupancy and purpose of the refinance. Call local professionals on the same day to get an accurate comparison for your situation. Also keep in mind that a local professional can help with your credit, appraisal and title issues should the need arise during your transaction.
Published in the Record Searchlight on 4/5/2009
Mark Gonzzigli
Mortgage Consultant
Vitek Mortgage
Redding
