Should I Refinance?

Oh my gosh!  Have you seen what interest is doing these days??? There are Ten Year Mortgages in the 3.75% range for heaven’s sake! Yes, 3.75%!!!


So the big question is, "Should I refiance?"  Here are some things to consider:

1. Does it make financial sense?

If you are considering a “rate/payment reduction” refinance, I typically recommend that people do one simple calculation. Divide your monthly savings into the costs (out-of-pocket expenses AND any increase in your principal balance). That number will tell you how many months’ payments it will take to “break even”. Depending on how long you anticipate staying in the home, and comparing that to your “break even” month, will give some idea to what is the right decision.

2. What about a refinance to shorten the term of a mortgage?

When examining the possibility of cutting years off your mortgage, you should take a good hard look at how such a move can affect your monthly cash flow. If your payment stays the same and you save a few years of payments, many people will choose that option (rather than the monthly savings of a “rate/payment reduction” refinance). However, if your payment is going up (in order to save years), take time to analyze the impact on your monthly activities. Will you be sacrificing too much to save payments 20 year from now?

3. What will my home appraise for?

This is the biggest challenge facing most people. With so many homes underwater, there are many people who won’t be able to refinance. If you have an FHA loan, there is some hope if you qualify for their “Streamline Refinance Program” because there is an option to close the loan without an appraisal. (For a 15 minute video explaining the program, go to www.Facebook.com/FHAStreamlineRefinances ) For others, loan-to-value issues can create the need for Mortgage Insurance when it didn’t before (making “savings” harder to achieve). Understand that most lenders require you to pay for an appraisal (and maybe an application fee too) when you submit your loan request, so do your best to have a real sense of what your home will appraise for.
 
If you need the name of a lender you can trust, give me a call, I have several.