Posted by Chris on 17. December 2008 09:00
This article is part of series on home mortgage refinancing, I’ve included some
regional specific information as it relates to San Diego. Similar posts
can be found for other metropolitan areas.
Is it time to refinance your home mortgage?
It looks like we are getting closer to the threshold where it will make sense for
you to refinance home mortgage loans that have a short term fixed
or variable rate. For the last couple of weeks the news has been reporting that
the US Government, through monetary policy, is attempting to drive mortgage rates
lower with the goal of reaching 4% or lower. Current 30 year fixed rate mortgages
are around 5.25%, as quoted by
. This is great news for anyone that has a variable rate loan or even if you have
a decent mortgage rate that is going to adjust sometime in the next seven years.
The lower rates will allow you the opportunity to refinance at a much lower rate
that is fixed for the life of the loan, without a substantial increase in the payment.
This may help slightly stabilize the housing market, as people faced with adjustable
rate mortgages that they can't afford can now stay in their homes with long term
fixed rate financing vs. having to sell their home at a discount.
San Diego
The only wrinkle, maybe canyon is a better analogy, in the Feds strategy is home
prices. In order to refinance home mortgage loans, the new lender will
order a new appraisal that will help determine the loan amount, typically 80% to
90% of the appraised value. Unfortunately, you may find that the value of your home
is not high enough to support your current loan amount. Over the last year median
home prices have fallen in most parts of the country. A San Diego home mortgage
may be harder to get as median home prices have decreased by 36% during the last
12 months, based on data provided by the
National Association of Realtors. Even if the value of your home is unchanged
or even up slightly, lenders are much more conservative today and could still require
lower loan to values, which could affect your ability to refinance your entire loan
amount. So even though you may not be "upside down", you may have to pay down your
loan in order to achieve a loan to value % that the lender is comfortable with.
If the home's value has dropped dramatically, and who's hasn't, you could be faced
with having to pay down your loan significantly in order to complete the refinance.
Faced with this dilemma, you’re limited to two tough options. You can dip into your
pocket or other access other debt to pay down the mortgage in order to complete
the refinance, or you can choose to ride out the recession and hope that home values
will rise to a point that will allow you to refinance without having to pull money
out of your pocket to pay down the loan.
For what it's worth
Either way, despite what you may hear on the news, there is money being lent by
financial institutions. It is harder to get, which is the new way of saying that
you actually have to prove you can make the payments, but the money is out there.
If you have an interest only mortgage, variable rate mortgage, or a fixed rate that
will adjust within the next seven years, I highly recommend you start exploring
a home mortgage refinance now. While rates have not dropped below 5% yet, you are
certainly better off being prepared for any issues that may arise during the application
or closing process. You should be able to obtain a conditional approval so that
you know what you in fact can qualify for. Lenders will often foot the cost of an
appraisal, which will also tell you whether or not you will have to pay down your
existing loan. One way to get an appraisal at no cost to you, along with some “just
in case” money, is to apply for a home equity line of credit. Lenders will typically
offer equity credit lines all the way up to 80% or 90% loan to value, usually footing
all of the up front costs, including the appraisal. We'll talk more about equity
lines in future articles, but they can be a great resource.
Not to get too long winded, I’ll touch on credit reports and choosing a lender in
today’s environment in Part 2 of San Diego Home Mortgage Refinance.