About Refinancing

We've been hearing a lot about refinancing.  What is refinancing all about?  Will it really help your current financial situation? When is the right time to refinance your home?

It may be the right time for refinancing your home if:
- You want to lower your monthly payment and you don't mind if you end up paying more interest over the life of the loan

- You want to shorten the term of your loan and you can afford to pay more per month

- You want to get cash out for a home improvement project or to pay off consumer debt 

- You have an adjustable-rate mortgage (ARM) and you want to convert to a fixed-rate mortgage to lock in current rate

Mortgage rates are at rock-bottom lows.  Freddie Mac recently released the results of its Primary Mortgage Market Survey showing 30-year fixed rate mortgage averaged 3.99%, the 15-year FRM averaged at 3.30%. 

According to bankrate.com, with the current mortgage rate in the market, this is a good time to at least consider refinancing your home.  Here are the things you need to know when you're thinking about refinancing:

1. Know how much your house is worth compared to how much you owe

If you do not know your current loan balance, you may check your last annual statement from the mortgage company, read a recent invoice or call the servicer and ask.  Just an approximate will be enough.  You can check Zillow Zestimate or Trulia for the current value of your home.  Divide the home's estimated value by the amount you owe. If you owe $80,000 and the house is worth $100,000, then you owe 80% of the home's value.  If you owe $120,000 and the house is worth $100,000, then you owe 120% of the value.

2. Find out the value of your home equity loan or equity line of credit. 

Add that amount to the amount you owe on the main mortgage. Take the combined amount, and divide it by the home's estimated value.  For example, if you owe $80,000 on the first mortgage and $10,000 on the same equity line of credit, you owe a total off $90,000.  If the house is worth $100,000, then your total debt on the house is 90% of the home's value.

3. Document all your assets. 

This includes all your savings and checking accounts, retirement accounts, mutual funds, stocks, bonds and trust funds.

4. Refinance for the same term as your outstanding loan.

With a refinance, don't start again at the bottom.  If you have already paid 5 years of your 30-year loan, arrange your financing for a 25-year mortgage.  You planned to pay off the remaining old mortgage in 25 years, so you should also plan to pay off the new mortgage in 25 years.  Just ask the lender to amortize your payments over the shorter term.  Or, if you can afford it, refinance into a 15-year mortgage.

5. Don't make any big purchases before closing the refinancing 

"A major financial investment could lower your credit score, this can result to paying more in fees or getting a higher interest rate.  Wait until the refinance is closed and funded before you do anything that might change your credit profile." says Michael Becker, Mortgage Consultant for Green Pastures Mortgage & Finance in Lutherville, Md.

6. Shop for several lenders

When shopping for lenders, check with different types of lenders: including banks, credit unions and mortgage brokers.  The more you compare rates and closing costs, the more you'll know which is the right lender for you.  Don't be afraid to ask too many questions. Ask about charges associated with a new mortgage, this may include the application fee, credit check fee, appraisal fee, origination fee, document processing fee and underwriting fee. 

Other charges may go by various names, including copying fees, broker fees and yield spread premiums.

7. Watch the little details

Read the contract carefully, watch out for small prints. This can save you lots of money if you fully understand the terms of your new loan. 

Refinancing allows you to take out a new loan that pays off your current mortgage.  Although you are then obligated to make payments on the new loan, your costs typically are lower after refinancing.  A new half-percent rate lower than the original interest rate may save hundreds of dollars each month.  However,
it is always advisable to make a comparison between an old loan and refinancing loan computation -- just to see if refinancing is a better option for you.

Beware of scams you might encounter during a search for a lender.

If you have any questions about refinancing, please don't hesitate to contact me.