Category Archives: Is Refinancing for You?

Should You Jump on Too?

The market has improved in pricing and rates are certainly looking good. Just because rates have gotten better and “everyone” seems to be refinancing, does it make sense for you to jump on the bandwagon too?

As with all financial decisions, it makes sense to understand your current mortgage situation. Here are some questions that will help a lender give you the best possible advice on the viability of a refinance and the possible benefits.

ID-100265173What is your current rate now? The general rule of thumb for a refinance to make sense is to drop your rate by 1 – 1.5%. If your loan amount is under $150,000, you may need the rate to drop 1.5 – 2% before refinancing will make financial sense.

Do you owe on any second loans, home equity loans or did you get any down payment assistance when you purchased your home? If you have these types of loans, and your goal is to pay them off, the new loan may be called a cash-out refinance. This type of refinance will require you to have more equity in the home and may have a little higher rate.

If you have a second loan, you may have to keep it depending on how much equity you have in your home. If the second loan was used for a down payment to buy your home, we may be able to use one of MN Housing’s refinance programs. Feel free to contact me if this situation applies to you. I would be happy to explain it in more detail.

What is your home value? Fortunately, the market is improving. Certain loan types will require you have a minimum amount of equity in your home or you may have to carry mortgage insurance.

Will the savings offset the closing costs? With all refinances, there will be costs involved, from the lender, title company and third parties. Also, a new escrow account will be established for future payments of taxes and insurance. Lenders can run these numbers to determine the charges and figure out the period of time to recoup the fees. The rule of thumb is to recoup the fees in less than 2 years. The costs may be covered by the lender (pay a higher rate), covered by you out of pocket, or rolled into your loan.

The last, and most important question – How long will you live in the home? If all the numbers align, but you only plan to live in the home another 2-3 years, refinancing may not make sense.

These are just a few of the questions to really determine if refinancing is right for you. Just because your friend, family member or co-worker is doing it, doesn’t make it the right financial decision for you. I’d be happy to assess where you are and where you want to be, to see if you should jump on the bandwagon too!

*Image compliments of Stuart Mills|

Refinancing — the Word on the Street

Many people have tried to refinance, only to be stopped by the value of their home in relation to the mortgage debt they carry.  In so many instances, people owe more on their loans than what their home appraises for

house under waterin today’s market.  Currently, we have options for those that are “underwater.”  This would apply to people where their current loan is owned by Fannie Mae or Freddie Mac.

Current guidelines allow up to 125% of the home’s value to be financed on just the first loan.  Many folks owe more than this.  The word on the street is that on November 15th, we will have new guidelines for this program, known as HARP (Home Affordable Refinance Program), allowing people above that 125% to refinance.  The details won’t be released until then, so we don’t know the exact parameters of the new program.

There are a few advantages for those with Fannie Mae-owned loans — such as the possibility of NOT needing an appraisal, not needing private mortgage insurance (PMI) if the loan currently doesn’t have it and not having to escrow for taxes and insurance if you currently don’t do that either.  With Freddie Mac, the advantages are the same, BUT, Freddie Mac’s program does require an appraisal.

Important criteria for the current program:

  • You must be current on your mortgage payments (no more than 30-days late in the last 12 months)
  • Your home value has DEcreased (pretty typical in today’s market)
  • Your first mortgage doesn’t exceed 125% of the current market value (known as loan-to-value or LTV)

Second loans, known as subordinate financing, CANNOT be paid off under this program, even if you used that second loan to purchase the home.  Any subordinate financing would stay in place and be re-subordinated (meaning subordinated again, but this time as second lien position to the NEW first loan).

There is NO limit as to the COMBINED loan-to-value (CLTV) under this program.  This means that as long as the first loan is under the 125% LTV, the seconds can go above that.  Just know that the lender who has the second loan may NOT be willing to subordinate to the new first loan, which is where we find a lot of these refinances stopping short of closing.  Many second mortgage loan companies prefer to keep BOTH the first and second loans UNDER 90% LTV, which would be impossible for most people attempting this program.

The occupancy type can be owner occupied as your primary residence, a second home OR even an investment property.  Pricing may be higher for a non-owner occupied home, so keep that in mind.

If you feel this may benefit you now or if you think the new guidelines may help, please let me know.  I would be happy to assist.  At a bare minimum, the following information would be required to process your loan:

  • a recent paystub
  • 2010 W2
  • 2010 federal taxes
  • recent month bank statement, all pages
  • copy of your mortgage note you received at your closing

Though this option is out there and may be available, not everyone qualifies.  Feel free to contact me to determine your eligibility!




When Does Refinancing Make Sense?

Kind of a silly question, right?  Most people think refinancing makes sense whenever the rate is lower.  I would concur, but the question is, how much lower does the rate need to be to make sense?

question marksGeneral rule of thumb — rate should be at least 1% lower, but usually 1 1/2% lower is the best financial move.  But why?  The rate is lower, so you’re saving money; seems to be a no-brainer, right?  Here’s the deal.  A refinance costs the same as purchasing a home.  Though you can do a no-cost refinance, you’re still paying for it by paying a higher rate.

No-cost means the lender costs are covered by the rate.  You still have title company charges, county fees, as well as the initial deposit for your taxes and insurance escrow.  The good news is you may essentially get reimbursed for all or a portion of the initial deposit when you receive a check from your old mortgage company with the balance of your previous escrow account.  This happens about 3-4 weeks after your refinance closing.

When looking to refinance, it’s best to get a copy of a good faith estimate or cost analysis to really determine if this financial move is a reality.  Many loan officers will give you the payment to entice you to do business with them.  The payment is absolutely an important piece to consider.  It’s what drove you to consider this, right??  It someone tells you what you want to hear, you just may lock that rate.

You need to know more which is why you need the estimate.  Here are some questions to consider.

  • How much are the lender’s costs?
  • How much are your yearly savings?
  • How long do you intend to stay in your home?
  • Do you have more than one loan against the home?
  • Will your home value support a refinance?

These are just a few questions to ponder.  It’s my goal to tell it like it is — if a refinance makes sense, then I am all for helping you out.  If it’s not, then let’s talk about what may make sense — paying extra, going to a shorter term or just staying put.  Just know, your financial well-being is my top priority.  It doesn’t benefit me to give you bad advice.

Is Refinancing Right for You?

This is a common question now that rates have fallen to the lowest levels in well over 40 years.  It would appear that everyone who has a mortgage should refinance because if you can get a lower rate, why wouldn’t you?  In some instances, I would agree; but, the answer is in the numbers.

Currently, I am telling all clients that there will be NO reason for them to refinance.  It won’t make financial sense; their rate is just too low.  As a homeowner, you may get solicitations to refinance because mortgages are public record.  Thing is, the lender doesn’t know your specifics, nor do they have your best interest in mind.  My current clients, from the last year or so,  know I won’t call them to refinance since I DO care whether they do the right thing.

calculatorSo when does it make sense?  One general rule of thumb is the new rate should be more than 1% lower than your current rate.  This isn’t true for all people though.  If what you owe is less than $150,000, you may need the rate to be closer to 1 1/2% – 2% lower.  And if your loan is less than $100,000, I would say it almost never makes sense to refinance.  You’re better off making principal payments.

Why though?  Since you’re taking out a new loan, you will have origination charges along with all the fees involved with a new loan — title company fees, setting up your escrow account and county fees.  Sure, you may hear that there are no closing cost refinances, but I am here to say nothing is free.  Your charges are either added to your loan, covered with a higher interest rate or being paid out of pocket by you or a combination thereof.  It’s time to run numbers!

To get a true sense if a refinance is a sound financial decision, you’ll want to gather the following information:

  • approximate value of your home (tax assessed values are actually higher than current values)
  • your current loan balance(s) on any first, second or home equity lines of credit
  • your current loan rate(s)
  • annual property taxes
  • annual homeowner’s insurance if a single family home
  • current principal and interest payment
  • your goals — reduce rate, take cash out, etc.
  • type of loan, i.e. fixed rate, term or ARM
  • occupancy of the home, i.e. owner occupied, second home or investment property

These will enable me to run figures and determine the “payback” time frame.  I recently had a past client do a refinance.  They were saving $200/month.  That’s a lot of money!  Their costs were about $4400 which covered lender fees, title charges and county charges.  Setting up the escrow is not figured into this equation.  Escrows are pre-paid expenses that cover future payments of taxes and insurance.  My client would pay for these regardless of refinancing or not.

Anyway, the calculation I run is based on the savings per year – $2400 – divided by the costs of $4400.  He’s going to re-coup these fees in 1.8 years, so under two.  This is the second rule of thumb.  If it takes longer than two years to recoup the costs, then refinancing may not be the right move.  Now, going to a shorter term or going from an Adjustable Rate Mortgage (ARM) to a fixed may make sense even if the time-frame to recoup is higher.  Biggest question here … how long will you be in the home?  Though we never really know the answer, it will certainly help guide the financial soundness of the refinance.

For those of you with second loans or home values close to or  than what you owe, refinancing may just NOT be an option, regardless of the savings.  Long and short — “maybe” is the answer to the title question.  It’s not right for everyone.  And when you work with me, I will make sure you know whether it’s right for you or not.  I would rather give you the straight scoop than have you upset that you did something you should not have.

Send me the answers to the bulleted items above.  Let’s see if refinancing IS right for you!!