Posted by Chris on 16. December 2008 04:18
This article is part of series on home mortgage refinancing, I’ve included some
regional specific information as it relates to Seattle. 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.
Seattle Numbers
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 Seattle home mortgage may be
harder to get as median home prices have decreased by 11% 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 Seattle Home Mortgage Refinance.