What You Need to Know Before Refinancing
During his State of the Union address on Tuesday, President Barack Obama called
on Congress to approve new legislation that would give all homeowners who are
current on their mortgages the opportunity to refinance at record-low mortgage
rates.
While details of the program have yet to emerge, the new
legislation - in theory - is designed to give responsible homeowners a
reasonable chance to refinance without running into roadblocks from lenders.
This would also give homeowners an opportunity to take advantage of today’s
continued, record-low interest rates.
According to CoreLogic, a company
that tracks national mortgage activity, an estimated 28 million homeowners could
cut the interest rates on their loans by more than one percentage point if they
could refinance. If you’re one of the many homeowners considering a refinance,
here are some important facts you need to know first. Be sure to consult with
your real estate agent and/or financial advisor, as well.
- Make sure you are in good standing on your mortgage. As the
President emphasized, refinances will be considered for those homeowners who
have a good payment history and are current on their mortgages. If you’re
currently underwater, a refinance is probably not an option for you. Consult
your real estate professional about other options, including loan modifications
and short sales.
- Check your current credit score. Refinance candidates need
to demonstrate steady income and good credit. Make sure your credit rating is up
to snuff and see what immediate measures can be taken to improve it if it’s not.
- Examine how much longer you plan to live in your home. If
you are planning to put your home on the market in the near future, refinancing
probably doesn’t make sense. You need to make sure you’ll be living in your home
long enough to recoup the closing costs of the refinance.
- Consider the length of the loan. Where you’re at with your
current mortgage can play a significant role in your decision to refinance. If
you’re close to retirement, for example, and your loan is almost paid off,
refinancing could result in extending the life of your loan, ultimately costing
you more. Also, if you're several years into a 30-year mortgage, your goal
should be to refinance into a 15- or 20-year mortgage instead. Otherwise, you’re
extending the number of years in which you’ll pay interest. Your refinancing
goals should be short-term and long-term savings.
- Find out the costs involved. Before you plunge into a
refinance, find out the costs involved. Weigh these fees against the money you
will save (contingent upon how long you plan to stay in your home) to make sure
refinancing is the right step.
As a Member of the Top 5 in Real Estate Network®, I have a wealth of real
estate and homeownership information that may be of help to you. Feel free to contact me
any time to learn more about this important information, and be sure to forward
this article on to any friends or family that may be interested as well.
Sincerely,