Should I Refinance My Mortgage?
In the wake of August 2011's stock market athletics, and the accompanying drop in interest rates, some have wondered whether they would benefit from a mortgage refinance. To help you decide if refinancing is right for you now, we have asked some of our favorite local mortgage officers for their opinions.
Martha Preston, Mortgage Loan Originator from CFCU Community Credit Union responded promptly with some good general guidelines to consider:
"The mortgage interest rates are incredibly low, but the mortgage underwriting guidelines are tighter than they've ever been before, so borrowers have to jump through a few more hoops in order to take advantage of these low interest rates. The old rule of thumb was that if you could reduce your interest rate by 2%, it was worth refinancing, but that was back when interest rates were much higher … now the rule of thumb is if you can recapture the costs to refinance within 24 months/2 years, it is worth refinancing."
Brian Kunk-Czaplicki,Mortgage Officer of the Alternatives Federal Credit Union, responded to our query with this clear and comprehensive statement:
"Right now is a great time to refinance a mortgage. Mortgages are a function of the interest rate, for sure. But, they are also a function of time. If someone started their 30 year fixed rate mortgage 25 years ago, it matters very little what interest rate they refinance to. They have such a small amount of time and principal left that they would not save any money on refinancing even if they drop their rate a few points.
I educate borrowers that are approaching a milestone (like 5 years into a 30 year loan) to look at all the options, including shorter term loans. Even a 20 year amortization may be able to shrink their total payout over time, and their payment might not change much depending on the amount of the new principal.
As far as Adjustable Rate Mortgages (ARM's); Most Home Equity Lines of Credit (HELOC's) have an adjustable rate feature. So if folks want to put equity into their home through improvement projects, but don't want to borrow all the money right up front, a HELOC offers a favorable term (usually between 10 and 20 years) and a flexible balance that can be repaid without penalty and reused for future projects or debt consolidation in trade for the prospect of a fluctuating rate over time. These are usually second mortgage products.
Adjustable rate first mortgage products are regulated much more since the market fell apart. For example, in 2008 the Federal Government instituted a market survey for fixed and adjustable rate mortgage products. This survey tracks the overall cost (the Annual Percentage Rate, or APR) including future rate/payment adjustments for ARM's. Financial institutions are to compare their products' APRs to this market survey weekly. Mortgage products with an APR that exceeds the market survey require significant disclosure and are considered more "risky". This discourages lenders from offering mortgage products that might experience immense jumps in payment due to significant &/or frequent changes in the interest rate over time. If a mortgage has a rate that can adjust in the future, it will be noted clearly on the new Good Faith Estimate form.
All of this basically means that borrowers need to really assess what their goal is and then they can accurately decide what their best option is. If they only want to be in the house for a few years, they can get a loan that has a better interest rate than a 30-year fixed rate loan. If they plan on staying in the home for a long period of time (longer than 10 or 15 years) then they might choose a slightly higher interest rate with a fixed rate product.
Pre-qualification for new mortgages, refinancing, and home equity lines of credit (HELOC's) is a free service available at most lenders, including the AFCU and CFCU.
If you think refinancing your mortgage may be a good idea for you, Brian, Martha or any of our other excellent local lenders are happy to meet with you to prequalify you and offer their best advice, with your goals in mind.
To give yourself a head start, click here and fill out the form to calculate your revised monthly mortgage payments: http://www.mortgagecalculator.org/ . Each lender is the best source of information on their menu of financing products and the closing costs associated with them.
Please visit our resources for links to these local lenders and other helpful mortgage brokers and loan officers.
