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Should I Refinance My Mortgage?

Many homeowners these days are confronted with the big question – do I refinance now since rates are at all-time lows or hold off?  While rates are unquestionably low, the answer to this question really depends on the specific financial position of the mortgage holder as our financial experts explain.

refinance-mortgage-applicationUpfront Costs
At low 4% rates, mortgage refinancing sure is attractive but that is not the only factor holders should be thinking about.  Refinancing isn’t cheap.  The closing costs alone can range any where from 3-5% of the entire loan balance.  So, a mortgage holder with a $350,000 loan balance would have to pay $14,000 or more just to cover the closing costs.  That is a significant amount of cash that many homeowners simply can’t afford to shell out in this tough economy.

Can You Afford Higher Payments?
Mostly short-term mortgages are at the lowest rates which means borrowers that refinance have to pay down their mortgage faster than with their existing mortgage.  For instance, a 30 year $350,000 fixed mortgage at 6.25% moving to 20 year at 4.25% means an additional payment of at least $200 each month.  Your monthly principal payments will increase because you will be paying off that $350,000 loan in 20 years as opposed to 30 years, even though your interest rate is lower.

Do You Qualify?
Mortgage holders with homes underwater won’t be able to refinance the traditional way.  They will have to go through one of the government subsidized programs such as the Home Affordable Refinance program.

Also, the bank will have to do the same checks they did when you first applied for the loan.  That means ensuring that your credit score hasn’t materially changed or is at least in the mid to high 600 range & your finances haven’t changed.  It is important to do a self assessment of your finances before you go down the path of applying to refinance your mortgage.

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