A Glass of Holiday Cheer Half Full
Posted 12/20/2011 by Anonymous
I don't know about everyone else out there, but with the new year just around the corner and with no end to the seemingly endless ups and downs of the market, I'm wondering if 2012 is the year to refinance? Can rates go lower?
Let's face it, because interest rates are low, more people may be (should be) considering refinancing their mortgage. But, lower interest rates may not be enough to persuade a homeowner to consider a refinance. Here are some things that you should pay particular attention to as you ponder the new year.
Loan to value ratios
More lenders are tightening their lending criteria, which means that fewer homeowners may be able to refinance. Check with your current lender and find out your current mortgage balance and how many payments you have left. Determine the current value of your home and then determine how much equity you have. This will give you a fair idea of what your loan to value ratio is. Remember, the lender will require an appraisal of your home as part of the refinance process.
Mortgage closing costs
Many lenders will offer to include closing costs in with a refinance. However, this could mean that the savings you realize from a lower interest rate is paid back over time, making closing costs more expensive. If possible, closing costs should be paid in cash. This means that your loan amount doesn't change.
Current Housing Market
Check with a local realtor and find out what the current market is in your neighborhood. Understanding how recent sales can impact your home value can make a difference in whether you embrace the idea of refinancing your home. If values in your area are depressed, chances are that your appraisal will reflect a lower value. This could mean higher interest rates on a refinanced mortgage.
Determine if refinancing your home would mean that you have to have personal mortgage insurance (PMI). This insurance is generally required on all loans where the loan to value is in excess of 80 percent. If you are not currently paying PMI, this could also mean an increase in your loan amount.
While it may be tempting to jump at the chance to accept a lower interest rate by refinancing your current mortgage, there are other conditions that will determine if it is worth your while to do so. Make sure that you have reviewed your credit report, assessed your current financial situation and know how many months remain on your current mortgage. Generally, a homeowner should refinance if their monthly payments will be lower, they are not negatively impacted by additional fees and the value of their home has increased.
The Last Word
So, low rates are only part of the equation. Interest rates, a steady source of income, credit history and equity are all factors. And, If the time isn't right, if the conditions aren't favorable for an affordable refinance solution today, then make a plan and stick to it. Credit scores can be improved, markets do come back, and these favorable rates look to remain so, at least for the near future. Refinancing is the right thing to do when the time and conditions are right. And, though It may not feel like it, Spring isn't really so very far away.
Relax, Enjoy the holidays. Take time to give careful consideration to your situation and plan wisely - you'll have 365 days to fulfill this new year's resolution!