Interest Rates Are Low – Should You Refinance?
Whether ’tis nobler in the hearts and minds of men to suffer the slings and arrows of refinancing?
That’s a great question. Interest rates are at a four-decade low and have been for months. Should you refinance? And maybe more importantly, can you refinance? To help set your mind somewhat at ease, first note that yes Virginia banks are lending, however it is not as easy to get a loan as it had been in fact lenders are making it quite hard to get approved.
Eighteen months of financial history, including tax returns and pay stubs used to be sufficient. Lenders are now requiring two years worth of documentation of income. Only borrowers with clean credit histories and high credit scores can get those super low interest rates. There are those who just won’t be able to take advantage of low rates because they’ve suffered a job loss or their income has been reduced and it now falls below the minimum required to qualify.
Many people think that if they owe more than the current value of their home, they can’t refinance. It certainly isn’t easy, but it is possible. There will be those who are not able to refinance because they do not have any equity, however help is still available to some in the form of Home Affordable Mortgage Program, HAMP, if you have a loan that is owned by either Fannie Mae or Freddie Mac. If your loan is owned by either of these you can refinance with out having any equity.
What if you’ve already refinanced? Some people that refinanced just last year are refinancing because of the drop in rates. Is that a good idea? It depends on how long it would take you to recoup the refinance closing costs, including title insurance, points and escrow and appraisal fees. An average loan will cost about $3000 to refinance. Compare your old mortgage payment to the new proposed mortgage payment. How many months of savings will it take to “get back” the closing costs?
Remember that just because you have new lower monthly payments does not mean that you have really lowered your costs. Every time you refinance, you are restarting the clock on your loan. If you’ve been paying on your current mortgage for 10 years, you probably have another 20 years until it’s paid off. You refinance and now you have a new 30 schedule. The money you spend on an added 15 years of mortgage may be more than what you thought you would be saving by getting a lower rate. Consider refinancing in to a 15 or 20 year loan.
You have to do your homework on mortgage financing, just like any other major purchase. Ask around. Talk to friends and family and see what rates they have been able to obtain and who they went to for their loan. Part of the problem with the housing meltdown was people were borrowing and not really doing their homework. You are getting a loan and you have to repay the loan or you could lose your home so it is vital that you read and understand all the documents that come with your mortgage. If you don’t understand something then ask questions.
Be sensible. Do your own due diligence and homework and you will not only save yourself some headaches but you save some of your hard earned money in the long run.
For first time buyers or move-up buyers looking at San Diego new homes, this is a great time with interest rates at historic lows. But is it time for home loan refinancing? It depends.
