Not always
dependant upon lower
interest rates,
refinancing is a good
idea under a variety of
conditions. If you need
to lower your monthly
expenses, find some
extra cash, or reduce
your risk level, it's
not a bad time to
consider reconfiguring
your mortgage.
On March 19,
Freddie Mac's weekly
mortgage survey put
average fixed mortgage
rates on conforming 30
years loans at 6.14
percent, the lowest
they've been all year.
Last year, rates weren't
much lower, down to only
6.10 percent for a brief
period back in January
2006, according to
Freddie Mac. With rates
low enough to help
consider refinancing,
Matt Coffin, president
of LowerMyBills.com, an
Experian company, says
there are some good
reasons to confirm the
decision.
"Right now
interest rates are low,
but even if they
weren’t, there may be
some people for whom
refinancing makes
sense," he says. "The
reasons for refinancing
can be as diverse as the
home owners who use this
tactic to help manage
their finances," he
said.
Coffin said home
owners need to first
take stock of their
financial health and
weigh the costs of the
current mortgage of the
cost to refinance. Home
owners also need an
objective, or goal.
"What do you want
to get out of your
refinance?" is the
question, Coffin says.
He offers five reasons
for refinancing. With
the help of other real
estate and housing
professionals, we've
tossed in one more to
come up with Six Degrees
of Refinancing.
Spend less monthly.
If you are stretching to
meet your monthly
payments on your
mortgage, consider a
refinancing option that
comes with a lower
interest rate than your
current loan. Determine
if the difference is
enough to make financial
sense to go ahead with
the new loan.
Lower the interest
rate. If you have owned
your home for a while --
and you bought it before
the interest rates hit
rock bottom, perhaps
with an expensive second
to help with the down
payment, options are
available to turn a
heavy debt into a
lighter load.
"In our growing
Utah market, as real
estate values continue
to rise, many home
owners can take
advantage of the growing
equity in their homes as
a tool to refinance
high-interest 90-percent
to 100-percent second
mortgages on their
properties into 80
percent or less
conventional fixed
interest mortgages. This
can get homeowners lower
payments and lower
interest all with
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one move," said Marcie
Hahn, a real estate
agent with Williams
Realty in Salt Lake
City.
Extend the term.
After many years of
living with a high fixed
rate mortgage (FRM) or
adjustable rate mortgage
(ARM) with a 30-year
term, refinancing to a
new 30-year loan will
cost a lot less. That's
because you'll be
borrowing less than when
you first purchased your
home. If rates are
lower, you'll benefit on
the lower payment side
even more.
"My parents were
struggling until I
refinanced them a few
years ago. They were old
school. 'Pay off the
house and when we get
old, no mortgage.' The
problem was, they had no
money," said Mark K.
Hicks, real estate and
mortgage broker/owner of
Seabrooke Financial in
San Jose, CA.
Change the terms.
That ARM may have been
swell when you first
signed on the dotted
line to get a low
"teaser" rate. Perhaps
time has run out on that
three, five or seven
year hybrid loan with a
FRM period that's now
switching to tougher ARM
terms. ARMS,
interest-only and other
high-leverage loans are
great door-opening
tools, but when the
initial lower rate ends
you may also have to do
the adjusting.
"Refinancing to a
conventional loan can
save you lots of money
and uncertainty in the
long run," says Coffin.
Eliminate other
debt. A common reason to
refinance is to use
equity to take cash out,
say to pay off higher
interest rate debt and
enjoy the tax benefits
of switching that debt
to your mortgage. The
caution here is not to
necessarily pay off
lower interest debt
simply to have one
payment. Also you must
be disciplined enough
not to return to the
high interest rate till
once the credit cards
are paid off. Cut them
up and correspond with
the credit card issuer
to close the accounts to
avoid backsliding into
high-interest rate debt.
Boost returns,
diversify. Bruce Hahn,
president of American
Homeowners Association,
says if you have a major
share of your net worth
tied up in home equity,
it could be earning more
invested elsewhere.
"It makes sense to
borrow the money, using
a cash out from the
mortgage and investing
the proceeds," in
stocks, home
improvements, a business
start up, college
education, anything with
a sound possibility of
creating, in the long
run, a decent return on
the money, says Hahn,
the association
president.
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