4 Questions to Ask Before You Refinance
With rates in the 4% range, the chance to refinance your existing loan is very tempting, but is it the right decision given the current economic status?
by Allison Gervais Sofnas
Sr. Mortgage Loan Consultant
Allison Gervais Sofnas
Many homeowners get caught up on the interest rate they secure rather than factor in all of the reasons they should or should not refinance. The most important question your mortgage broker should ask is, “What is your goal?”
If they do not ask this question and simply quote you tempting rates, find another person to work with. There is more to consider than saving $150 a month on your payment.
How long do you plan on owning this property?
If the answer to this question is less than 5 or 10 years, you may want to consider refinancing into a hybrid loan (Adjustable that is fixed for several years, then turns adjustable, ideally after you have already sold the property.) These are still offered with interest only terms, thus reducing the monthly payment. The rates are also slightly lower than fixed rates.
If you plan to stay longer than 5 or 10 years or are not certain, the 30 year fixed is your best bet, especially when rates are as low as they are currently.
You also have to consider the closing costs. If you can save $200 on your monthly payment and it takes two years to recoup the closing costs but you plan to sell in three years, you end up $2400 ahead with some additional tax deductions.
Do you need to lower your monthly payment?
With layoffs, the recession and salary deductions in effect, a loan that was once affordable may be tougher to swing. Loan Modifications can be granted by your current lender by means of lowering interest rate, principal or lengthening your term to make payments more affordable. While this sounds like a great idea, only 13% of trial modifications have become permanent.
Beginning June 1, Obama is requiring all lenders to document income information up front making it even more difficult for trial modifications to be granted. Basically, very few people are granted permanent loan modifications so other options need to be explored.
Most people lower their monthly payment through a refinance. They either save money by lower their interest rate, combining an equity line into their first mortgage or paying off high interest rate debt. Debt consolidation works well if you do not rack the debt up again, subsequently putting you in a worse financial position.
Do you currently have an adjustable rate mortgage?
If you do and you plan to stay in the property for longer than it takes to recoup the costs of refinancing, you may want to convert (refinance) it to a fixed rate. The rates are at historic lows and this window of opportunity will vanish at some point in the future. People don’t want their payment to increase, however, remaining in an adjustable rate mortgage is risky because at some point, rates will increase.
If you are unsure, contact a mortgage broker for information. There should be no up front fees to apply (if there are, walk away) and the mortgage broker should be asking the above questions to give you good advice and offer you the best loan products that meet your current needs with your future goals in consideration.
Allison Gervais Sofnas is a Senior Mortgage Loan Consultant with First Capital Group – a mortgage company in San Francisco, CA. She offers residential and commercial financing. Allison is also a Certified Divorce Financial Analyst and uses her expertise to assist clients with the equitable division of assets. Please e-mail Allison for more information.
If you enjoyed this article and want to share it with a friend or the world:) …it’s easy. Click on the Share/Save button and you can e-mail, Tweet or Bookmark it!
Related posts:
Recent Posts
Is Your Relationship Dead or Alive: Relationship vs Relating:
Why is it that most of the time, people talk about their ...
Women's Sexuality: The Joy of Touch and other Sensual Delights:
Ooooooh, yes! Touch me there, again! This month, we’re ex...
Furniture for Small Spaces: Storage Magic!:
In my last article Secret's to Decorating Small Spaces, I...
Grow Your Business: Harness The Exponential “Power of 10″:
First, let me explain the Power of 10 concept and it's ex...
Astrology: 5 Ways Leo Stokes the Creative Fires:
Leo (July 22-Aug 21) is the most creative, expressive sig...
Personal Wealth: How to Handle a Financial Windfall:
Some of us will be the fortunate recipients of a sudden, ...
Trackbacks/Pingbacks
[...] If you are underwater or behind on your mortgage, try to negotiate a loan modification, refinance or, as a last resort, a short sale with your lender before putting your home on the market. [...]
[...] one’s name off the mortgage is historically done through a refinance since the banks don’t usually allow one person to simply remove their name from the mortgage [...]