Is NOW this right time to Refinance?

Are you still wondering if refinancing might be a good option for you?

Have you read the paper, listened to the radio or watched any news stations?  Home Loan Interest Rates are the lowest they have been in over 30 years!  What are you waiting for?

If refinancing makes sense for you, it could save you a significant amount of money, right now!  Imagine what you can do with the savings.  What could you pay off?  How would it change your lifestyle or budget? 

Savvy financial people don’t jump into this process lightly.  They make sure to go thru these very important steps to make sure refinancing is in their best financial interest.  Simple things such as checking your credit score and knowing the value of your home will help you make an informed choice.

#1 - What Can Refinancing Do for You?
Refinancing your home is a big decision.  You need to know exactly what it is and how it actually benefits you.  Plus, with all the Lending Guideline changes, Lenders must show a “Net Tangible Benefit” to actually refinance your home.  This means there needs to be a benefit to Home Owners such as Lower Interest Rate, Monthly Payment Savings, Shorter Loan Term, Refinancing an Adjustable Rate Mortgage into a Fixed Rate Mortgage, etc.

Basically Refinancing is the process of getting a new Mortgage to replace your current Home Loan. This new loan will pay off your existing 1^st Mortgage (and possibly your 2^nd if you have one).  This new loan could give you a new interest rate, new monthly payment, and a new term length.

Normally people will refinance their current loan to lower their interest rate on their loan.  This really means that when you reduce your interest rate, you will also lower the cost of borrowing money and truly save money over the life of your Loan Term.

Refinancing for a different term would help you go from a 30 year loan term down to a 15 year loan, or vice-versa.  To switch from an Adjustable Rate Mortgage (that changes its Rate periodically) into a Fixed Rate Mortgage (one that doesn’t change or fluctuate), combine your first and second mortgages or to take cash out for debt consolidation.

Do your due diligence and your own research.  Discuss with your CPA/Accountant or Financial Planner and contact a trusted Professional Mortgage Lender, and find out how you could benefit from refinancing.

#2 - How Long Do You Plan to Stay in Your Home?
Never plan on moving? Is this your dream home, the one in which you want to stay until you're old and gray?  You really need to be honest with yourself so you can determine whether refinancing is the right decision for you.

If you're planning to stay in your home for at least a year or longer after refinancing your mortgage, it's probably worth it to refinance.  Please consult with your trusted Mortgage Professional to help determine the pros and cons of refinancing.

#3 - Check Your Equity
Equity is the difference between the current Market Value of your home and the amount you still owe on your Mortgage.  This will play a very important part in determining whether or not you can refinance.  If you are “upside down”; owe more than what your home is “worth”, there are Special Loan Refinance Programs such as HARP, HARP2.0 and the FHA Streamline.  Please consult with your trusted Mortgage Loan Professional for details on these Special Loan Programs.

Depending on the Loan Program there are different amounts of required Equity you would need to have.  Due to the Real Estate Market downturn, and Mortgage Lenders and Banks are very cautious when lending money with Real Estate as collateral.

There is good news!  If your Home Mortgage Loan is actually “owned” by Fannie Mae, Freddie Mac or FHA there are still options out there for those with little or no equity, according to Making Home Affordable (MHA), an official program of the Department of Treasury & Housing and Urban Development.

#4 - Check Your Credit Score
Know what your Credit Scores are? If not, you should probably get on top of it because having a good credit score is extremely important when it comes to refinancing.  Check your "current credit scores" at www.FreeCreditReport.com or www.AnnualCreditReport.com.  Although this will not be the same score as what the Mortgage Lenders will pull thru a Tri-Merge Credit Report, it will give you an idea of where your Scores are currently.

Your Credit Score determines whether you can actually qualify for refinancing, as well as what interest rate you will qualify for. Usually, the higher the Score, the lower your Interest Rate will be.  To be able to qualify for these historically low Rates that are currently available, you will need a very good Credit Score. 
Please see your trusted Mortgage Professional for details on what you would actually qualify for based on a scale of 300 to 850, according to the Fair Isaac (FICO) Scale, which is the Credit Rating Determiner that most Banks and Mortgage Lenders use.

What happens if you're not overly thrilled with your score and can’t qualify for the lower Interest Rates? You can still make and work out a plan to improve your Credit Scores. In fact, according to the FICO website; 65 percent of your Credit Scoreis determined by only two factors; your Payment History and the outstandingCredit Line/Loan Balances you still owe.

Even though it may take some time and effort to increase your Credit Scores in a positive direction, keep paying all bills on time and pay down as much debt as possible, you will definitely be going in the right direction.

#5 How Much Will You Lower Your Interest Rate?
The main purpose most people will refinance is probably to save money by lowering their interest rate, which is basically the price you are paying to borrow the money.

There are Closing Costs and Third Party Fees associated with refinancing.  You need to make sure you lower your Interest Rate enough to make refinancing worthwhile.  Everyone has a different scenario and what’s good for someone else’s financial needs may not be the same as your specific needs.  Do what’s right for you and your special situation.

You can “Buy Down” your Interest rate.  By paying additional Fees or “Discount Points” you actually lower your Interest Rate below what you would qualify for. 

 

#6 – What are your Closing Costs?

Paying interest on your loan is NOT the only price you have to pay to refinance!There are other Closing Costs, Third Party Fees associated with your new Mortgage Loan. It's very important to make sure that the refinancing savings outweighs these.  You will also need to set up a new Escrow Account for your Property Taxes and Home Owners Insurance.

To make this easier to understand what Closing Costs and Third Party Fees are, below is a breakdown of some of the more common ones, but they could vary from Lender to Lender.  

• Loan Origination Fee:  Lenders charge this to cover such things as related Attorney Fees, Document Preparation Fees, Application Fee, Commitment Fee, Lock-in Fee, Underwriting Fee, Administrative Fee, or Processing Fee.  Sometimes these Fees are combined and other times they are broken down individually. Each Lender will vary in the way they list these.
• Application Fee: Your lender may charge this Fee to cover processing your Loan Application request and reviewing your credit file.  There may also be a Fee for pulling a Tri-Merge Credit Report.  
• Discount Points: These represent a one-time fee from the Lender used to “Buy Down” your Interest Rate.  One Point equals One Percent of the amount of the loan. For example, one point on a $100,000 loan is $1,000. These fees may vary as the actual “cost of money” fluctuates throughout the day.  In fact, it can fluctuate as much as every half an hour depending on that particular day’s market volatility. 
• Appraisal Fee: This is a determination by an Independent Professional Appraiser of the actual worth of your property.  Lending Guidelines require an Appraisal to make sure it is worth at least the loan amount.  Costs will vary depending on the type of Appraisal (Conventional, FHA, USDA/Rural Development or VA).  Plus a Re-inspection Fee may be required if there are any “cited” items to be repaired prior to Final Loan Approval.
• Lender-Required Home Inspection Fees:
  Depending where your home is located, the Lender may require inspections of the house's systems and structure (such as Well and Septic).
• Private Mortgage Insurance (PMI)/ Mortgage Insurance (MI):   If your Loan-to-Value is over 80% of the market value of the home (means that your down payment is less than 20 percent) you will usually be required to carry Mortgage Insurance. This insurance covers the Lender's loss if you don't make the required mortgage payments and are in Default.

 

Lots of great information to help you make an informed decision about refinancing your home Mortgage.

Steven Goldman

Sr Mortgage Loan Consultant

763.202.8145

StevenGoldmanLoans@yahoo.com

www.StevenGoldmanLoans.com