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House Refinancing

Although refinancing has been extremely active in the last couple of years, there are still hundreds of thousands of homeowners who have not refinanced their homes (or even considered refinancing) and are paying mortgage payments every month at a rate that is considerably higher than what is currently available.

Before you embark on a program to refinance your house, though, there are a few questions you will need to answer. By analyzing your current situation you will be able to make a more informed decision as to which is more beneficial: refinancing or maintaining your current mortgage.

Important Questions to ask:

1) What is your current interest rate?
2) What is the current market interest rate?
3) Is the rate fixed or variable?
4) How long do you plan to stay in this home?
5) Do you have cash available for the closing costs?
6) Is the value of your home increasing, decreasing, or staying about the same? What are the short term and long term prospects for the value of your house?

Analyzing your answers:

1) and 2) As a rough rule-of-thumb, if the difference between your current mortgage rate and what is available is approximately
1 1/2 percentage points or more, it may be to your advantage to refinance. If the difference is 1 1/2 points or less, it may not make sense to refinance, depending on the amount of closing costs.
3) If you have a variable rate, the rate is continuing to climb every year, and the current market interest rate is lower, it may be advantageous to refinance your house.
4) If you plan on staying in your current house for more than three years, it may make sense to refinance. If you feel confident that you will be moving in less than three years, it will probably be better to stay with your current loan (unless there is a large variance between your current interest rate and what is available).
5) In most cases, you will need at least some cash for closing. FHA and VA loans will allow you to "roll-in" certain closing costs into the new loan, but some cash will still need to be available.   You can find FHA refinance rates here.
6) If the value of your home is staying the same or increasing you may be able to increase your equity more quickly with a lower interest rate. If the value of your home is decreasing, it may not be a good idea to throw "good money after bad" for closing costs when your equity position may well be eroding.

Obviously, the lower rates that are common today have even more impact on your savings. Refinancing your house now can have a real impact on your financial health.


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