This week rates have been as low as they have ever been, and lower rates translate to lower payments and therefore, any homeowner with a mortgage should be exploring their financing options. Homeowners with Home Equity Lines of Credit, homeowners with adjustable rate mortgages, homeowners who would like to reduce their mortgage payment, homeowners who want to create some cash for a vacation or a project or college education and homeowners who have the goal of paying off their mortgages sooner should be meeting with a mortgage professional to find out what is the best course of action.
Just because rates may be lower than your current rate does not mean that refinancing makes sense. The downside to refinancing is that you will have to pay lender and escrow fees. My general rule is if a borrower can save one full percent in rate, spending the money on the closing costs will make sense. This of course is dependent on several factors like the size of the loan, the number of years you plan on keeping the loan in place, the number of years the current loan has been in place, your personal long term financial strategy, etc.
Fees can be paid in a few different ways. They can be absorbed by accepting a higher rate; for example, if a 30-year fixed rate at 4 percent required $5,000 in closing costs, a lender may be willing to pay all of the closing costs if you were to accept a rate of 4.5 percent. These refinance costs can also be covered by increasing the loan amount by $5,000 or the homeowner may choose to pay the costs separately from savings.
Refinancing is not the only way to save money. The good news is that by simply increasing the mortgage payments on the existing loan, the homeowner may be able to save big bucks. The calculations necessary to determine whether or not a refinance makes sense are easy and straight forward but do require a financial calculator and a knowledgeable mortgage professional you can trust.
Be cautious of online and direct mail solicitations; these companies may not have your best interests in mind. Be sure you work with someone you can count on and who will be there when you need them.
If you already have lower payments with an adjustable rate mortgage or an interest-only option on your current mortgage, do not let this opportunity pass you by without taking into consideration that the honeymoon period of your current mortgage will be coming to an end, it is just a matter of when!
Homeowners who are tempted to take advantage of these historically low interest rates should first make a decision on who they will count on as their mortgage professional, review their current situation with that person and then make an informed decision as to whether or not a refinance is the best course of action or not. Take note, income and asset verification is required for all loans, expect to be asked for two years of tax returns and W-2s, current paystubs and bank statements. There are also some loan programs that allow homeowners with little or no equity to refinance.
Peter Boutell is a local mortgage consultant. Send questions to Lending a Hand,' 1535 Seabright Ave., Santa Cruz, CA 95062, or fax 425-1044. E-mail him at peter@santacruzhomefinance.com. Archived columns are available at www.peterboutell.com.
Source http://www.santacruzsentinel.com/
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