Monday, February 09, 2009
Economic survival guide: Is this the right time to refinance your home?
Pinching pennies? Lowering your monthly mortgage payment may help you save money.
The latest from The Ticker blog
Economic Survival Guide
These days, the economy is on the minds of many. Weekly through mid-March, we'll give you practical advice on ways to keep yourself in the best financial shape possible.
- See more of the series
- Last week: Get what you need
- Earlier: How to file for unemployment
- Preparing for a layoff
- 10 tips for cutting costs and saving money
- How to make a budget
Next week
- Are bill collectors calling you? We’ll tell you how to handle them without worsening your credit score.
Resources
The Federal Reserve Board
- Consumer's Guide to Mortgage Refinancing
- federalreserve.gov/pubs/refinancings/
Virginia Association of Mortgage Brokers
Refinancing is booming. Homeowners nationwide want to lock in low interest rates, trim payments and adjust the terms of their home mortgages. With rates on 30-year fixed-rate mortgages dipping to the 5-percent range (and below 5 percent for 15-year fixed-rate mortgages), now is a good time to refinance, local mortgage companies say, before rates climb back up. Here’s what you should know before taking the refinancing plunge.
Q. When should you refinance?
A. If you plan to stay in your home for more than three years. Homeowners who expect to move in less than three years risk the chance of not fully recouping the money that they pay to refinance. The costs of refinancing vary, and include attorney, appraisal, title insurance and lender fees.
Also, only refinance if you can save a full percentage point off your interest rate. Additionally, you should aim for cash savings of at least $100 a month.
Q. When should you not refinance?
A. If you have had your mortgage for a long time. Each year, the proportion of your payment that is credited to the principal of your loan increases. More of your payment applies to the principal and helps build equity in the later years of your mortgage. If you refinance late in your mortgage, your monthly payment gets credited to paying interest again, rather than building equity.
Additionally, check on whether your lender charges a prepayment fee if you pay off your mortgage early, including refinancing the loan. Consider those costs against the savings that you expect to gain from refinancing.
Q. What is considered when I submit my application for refinancing?
A. The worth of the home, how long you plan to live there, other debt, credit score, income and other personal information.
Q. How long does it take to complete a refinance?
A. Thirty to 60 days. It’s much longer than in the past, when filings may have sailed through in a month. The underwriting process is slower, because some banks have laid off employees after slow business last year.
Q: Can I lock in a lower rate if I have an adjustable rate mortgage?
A. Yes, but do it fast, if you want to land a low interest rate. Mortgage companies can’t predict when rates will creep up again (the national average on 30-year fixed rates dipped to 4.96 percent briefly last month, according to Freddie Mac).
Q. What should I know about choosing a mortgage lender?
A. Choose the mortgage company carefully. Narrow your choices to three companies and check with the Virginia State Corporation Commission’s Bureau of Financial Institutions to verify the business’ license and whether it has had any violations. Do not give your personal information to a mortgage company until you have chosen the one that you plan to use.
By law, lenders are required to give a good faith estimate within three days of receiving your refinancing application.
Keep track of information from various companies with a mortgage shopping worksheet. You can access one through the Federal Reserve Board’s Web site.
