Following the Great Recession of 2008-2009 mortgage rates hit record lows, and although rates are beginning to go up, they still are much lower than before. Low rates mean that it may make sense for you to refinance the mortgage on your home.
Banks have tightened their credit requirements and if a down payment or the equity in your home is less than 20% you may be asked to get private mortgage insurance (PMI).
Talk with your mortgage lender as some home refinance programs offered by Fannie Mae, Freddie Mac, or the FHA may have lower down payment requirements.
When is it time for Refinancing?
When you refinance a mortgage, you pay off an existing home mortgage and replace it with a new mortgage. Homeowners choose to refinance an existing mortgage for several reasons.
But should you refinance your mortgage? Some reasons to consider refinancing include:
- The prospect of getting a lower mortgage interest rate
- Shorten the term of your mortgage
- Convert from an adjustable-rate mortgage, also known by the acronym ARM
- Tapping into your home’s equity to finance a large purchase
- Debt consolidation
Get a Lower Mortgage Interest Rate
Until the Great Recession, lenders usually advised buyers that unless you reduce your interest rate by at least 2% you should not do a home refinance. However, financial experts now recommend a “refi” if you can save 1% on your mortgage rate.
The advantages to a better interest are twofold:
- Your monthly payment will be lower
- Your equity will increase more quickly
Shorten the Length of Time To Pay Your Mortgage Off
With interest rates still historically low for mortgages, as a homeowner, you can refinance your home at a lower interest rate. With a modest increase in your monthly mortgage payment, you can pay your new mortgage off in 15 years. For illustrative purposes suppose you have $200,000 mortgage with a 30-year term at a 9% rate. Your monthly payment is $1,609.24 per month. If you refinance at 5.5% for only 15-years your new payment will be $1,634.16 per month.
Convert Your Adjustable Rate Mortgage (ARM)
Many homebuyers want to keep their monthly payments low and select an ARM rather than a conventional mortgage. This is because ARMs are usually less costly in the first few years. However, if rates start to rise, as they are now, it might trigger rate increases for you. Converting to a conventional mortgage makes sense if you are planning on staying in your home. Your rate and term are fixed and you needn’t worry about an ARM increase if you refinance now.
Tapping into Home Equity to Refinance Debt
Often, homeowners tap into their home equity to pay off higher interest debt. Using the proceeds from a refinanced mortgage to pay off higher debts such as a car loan or student debt can be a wise financial move. However, be careful. If you are late or miss a credit card payment you will get a reminder phone call from your lending institution. Miss a mortgage payment and you are on that slippery slope to foreclosure.
While calculating the costs of refinancing your house, make sure you include all fees and other costs you will incur besides the mortgage. With fees and other costs added to your mortgage amount, it may not make sense to refinance. This is a discussion to have with your mortgage lender before filling out any paperwork.
Can I Refinance a Mortgage if I am Underwater?
The Home Affordable Refinance Program (HARP) is a government-backed program that makes requirements for refinancing home loans less strict for those who have Fannie Mae or Freddie Mac mortgages issued before May 31, 2009. Other requirements for HARP refinancing are:
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
The HARP program will end in September 2017.
Caliber Premier Mortgage Lender – Diana MacFarlane
In and around Santa Barbara, California homeowners who want to refinance should call Diana MacFarlane. Diana is a Senior Loan Consultant with the company located at 1111 Chapala Street, Suite 100, Santa Barbara, California 93101. Diane enjoys an amazing track record for client home closing 95% to 97% of her mortgage loans. Diana has devoted her career to mortgage lending and in 3 decades in the mortgage business has helped fund more than $3 billion in mortgage loans.
For more information about refinancing through Caliber Home Mortgage Loans call Barbara at 805.886.8269 or email her. When you speak with Barbara you will quickly understand that her knowledge of the refi market and mortgages contribute to her being a top producer of mortgages in the Santa Barbara region of California.