IS IT TIME TO REFINANCE?

You keep hearing that interest rates are at historic lows and you you want to figure out whether you can refinance.  Obtaining a mortgage has become significantly more difficult and more expensive in the past couple of years, thanks to the financial crisis, however, refinancing is still possible and may make financial sense.  You need to do your homework first!

Consider the following 3 questions to help determine whether refinancing makes sense for you:

Planning on moving?  The first question to consider is whether you plan on retaining the house for at least 2-4 years (the longer the better).  If you’re not planning on owning the house for at least a couple of years, refinancing may not provide a net benefit to you.  However, the larger the mortgage and the greater the differential between your current interest rate and the market rate you may realize by refinancing, the more refinancing may make sense even on a short term basis.  So don’t dismiss the idea of a refinance without reviewing your unique situation with me.

Do you even qualify for a refinance?  It can be tough to refinance these days.  If your loan to value ratio is too high, meaning that your property doesn’t appraise at a high enough value to meet the required loan to value guidelines in comparison to your outstanding loan balance, it may be hard to refinance.  You may also be considered a higher risk if your debt to income ratio is high or your credit scores are low.  Again, the only way to  know is to give me a call!

What are the costs to refinance versus the reduction in your interest rate?  If you do qualify to refinance, you’ll want to review the costs to refinance to determine your “break even” mark.  The point that your monthly savings with the lower interest rate out runs the cost of the refinance.  Going back to question one where you identified how long you plan on retaining your home will help you determine whether or not the savings vs. the cost makes sense.

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