Should You Refinance Your Home?

Whether ‘tis nobler in the hearts and minds of men to suffer the slings and arrows of refinancing your home?

That’s a very good 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.  Keep in mind that the best rates are only going to those with the high credit scores and clean credit history. Unfortunately there are many would-be borrowers who have suffered a job loss or pay reduction. If your current income falls below the minimum required to qualify, you won’t be able to take advantage of today’s low rates.

However even those up-side down or under water can get refinancing. It certainly isn’t easy, but it is possible. If your loan is owned by Freddie Mac or Fannie Mae, as most are, you may be able to refinance through the Home Affordable Mortgage Program, or HAMP. This program was specifically designed to enable those homeowners with no equity to refinance their mortgages to a more affordable interest rate.

What if you recently refinanced? What if you just financed a new home in San Marcos or Detroit?Some people that refinanced just last year are refinancing because of the drop in rates. However one thing you should look at if this is the case for you is how long will it take for the amount you save on your monthly payment is equal to the amount of insurance, appraisal and escrow fees. Refinancing an average loan costs about $3000. How many months of lower payments will it take for you to “get back” that amount?

New lower monthly mortgage payments do not necessarily translate into lower overall costs. Every time you refinance, you are restarting the clock on your loan. Let’s say you have been paying your mortgage for 15 years, there are 15 years left to pay it 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. Ask your loan officer about a 15 or 20 year loan. Often the interest rates are even lower on these shorter term loans.

Like every other purchase you make do your homework. 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.