Many homeowners wonder if timing is a factor when refinancing their mortgage loans. With all of the mortgage problems you hear about in the news is refinancing even a good idea? Here are several tips to help you decide if refinancing is right for your financial situation.
Should You Refinance?
The decision to take out a new mortgage depends largely on your objectives for the new mortgage loan and your financial situation. There are many valid reasons for refinancing and not all are dependent on qualifying for a lower mortgage rate. Taking out a new mortgage to consolidate high interest debt or take cash back against the equity in your home are all valid reasons for refinancing where you may not always qualify for a lower mortgage interest rate.
The “Two Percent Rule” is Rubbish
Some people tell you that you should never refinance unless you qualify for a mortgage rate that is two percent lower than your existing rate. This so called “rule” does not consider any other reason for refinancing than lowering your mortgage rate and greatly oversimplifies the decision. Instead of basing your decision for mortgage refinancing on getting an interest rate that is two percent lower, it makes sense to evaluate your options on a cost vs. savings basis.
Refinancing your mortgage is going to cost you money. You’ll be required to pay a number of fees to your loan originator, lender, and several third parties when closing on the new mortgage. If your goal for refinancing your mortgage is to save money, you should determine how long it will take you to recoup the expenses you’ll pay when taking out a new mortgage. You can do this by adding up your total costs: origination fees, points, and closing costs. Divide this amount by how much lower your payment will be each month and you’ll have the number of months it will take you to recoup your expenses.
The longer you plan on staying in your home, the more time you’ll have to recoup the costs of refinancing with a lower mortgage payment and the more sense it makes to refinance your mortgage. Keep in mind that not everyone will qualify for a lower mortgage rate when refinancing; however, this does not mean you should never refinance your loan.
Mortgage Refinancing to Consolidate Bills
The main advantage of refinancing your mortgage to consolidate bills is that you will gain a tax deduction for the interest you pay on your debt. When you refinance your mortgage for debt consolidation you are simply borrowing more than you need to pay off your existing mortgage. The extra amount you borrow will be paid to you at closing and you can use this money to pay off your high interest credit cards, student loans, and car loans.
Mortgage Refinancing in the Current Economy
You’ve probably heard on the news that the mortgage industry’s problems are threatening to drag the US economy into a recession. Some analysts are already predicting the beginning of the apocalypse due the irresponsible business practices of bad credit mortgage lenders. While I don’t believe the sky is falling the mortgage industry’s problems will make it difficult for homeowners with bad credit or jumbo mortgage loans to qualify for a new mortgage. This is going to create problems for homeowners with Adjustable Rate Mortgages scheduled to reset soon. If people are unable to afford the new mortgage payment and cannot qualify to refinance they will lose their homes to foreclosure.
If you are a homeowner with an Adjustable Rate Mortgage scheduled to reset within the next two years and are concerned that you won’t be able to afford your payments, do not wait until the last minute to refinance! Get started now by doing your homework and finding the right person to originate your loan. Mortgage lenders will be desperate to close loans in the coming months and homeowners that have done their homework will be able to take advantage of the vacuum this “mortgage crisis” has created.
You can learn more about your mortgage refinancing options, including costly mistakes you’ll want to avoid with my free mortgage refinancing toolkit. Register today for free with no obligation whatsoever using the link at the top of this page.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
