What is your mortgage payment? Many feel they are locked into whatever it may be due to the economy. But believe it or not, new federal programs have been created to help people potentially refinance their homes in order to get a lower house payment with a lower interest rate. Since the federal programs have been introduced last year, more than 2 million homeowners have taken advantage of these refinancing opportunities.
Who can qualify? Borrowers current on payments with Fannie Mae or Freddie Mac guaranteed loans could be eligible for refinancing into new loans. This applies to those who owe more than the homes worth up to 125 percent of the home’s current value. The previous HARP loan-to-value limit was 105 percent. Another additional bonus is that if your existing mortgage was written without mortgage insurance, the new loan won’t be burdened with the extra cost. Fannie Mae and Freddie Mac loans typically require mortgage insurance when the loan is more than 80 percent of the home’s value.
What are some of the restrictions? If your second mortgage combined with the first exceeds the 125 percent limit you cannot qualify and you are not allowed to take cash out.
Another reason to look at refinancing is one can change the type of loan they have from a fixed or adjustable rate, or a shortened loan term.
So how does one know whether they should look at refinancing, whether with government inducted programs or otherwise? There are a few questions you should ask yourself. They include:
1. How high is your current interest rate? Your interest rate will determine the amount you pay on your mortgage, of course the lower the rate, the lower your monthly mortgage payment. If you are in need of a lower payment because you just can’t come up with the money every month, looking at a lower rate is the first place to start.
2. How long of a term is your mortgage? Stretching out the term of your mortgage will also reduce your monthly payment, however this also increases the total amount you end up paying toward interest and the home itself. This is where you want to crunch numbers. Shorter-term mortgages often have lower interest rates, longer term, higher. Which will be more beneficial to you will depend on how the numbers come out and what you can qualify for.
3. Adjustable-rate vs. fixed-rate mortgages. What type of loan are you currently paying on? Does your monthly payment vary due to its adjustable interest rate or does it remain the same because it is fixed? There are positive and negatives for both. If you feel more comfortable knowing what your payment is month to month, you may have to pay a bit more in interest. On the other hand, adjustable rates or ARMS could also go up and make your payments steadily high.
4. Readjusting Your Adjustable Rate – So maybe you like having an ARM or adjustable rate, maybe you just want to readjust it. You can refinance for a new ARM and better terms.
5. Getting Cash Out. This is one of the main reasons people are refinancing, to take equity out of their homes. Home equity is the dollar difference between the balance you owe on your mortgage and the value of your property. When you take equity out of your home, you owe more on your house, basically requiring you to pay back the cash you took out on top of the amount you owed previously.
Refinancing can be a bad idea if you have had your mortgage a long time and most of your payment is now going to the principal of your home or the amount due as opposed to the interest. When you refinance your home late in your mortgage you will restart the amortization process which then puts most of your monthly payment toward interest again.
You will not want to refinance if you have a prepayment penalty fee either. Nor would you want to refinance if you plan to move from your home within a few years. The fees for refinancing would not be recaptured in the savings in this situation.
Is it time to refinance your mortgage? Only you can determine the timing based on the above questions.
Ron Scott is owner of MyExpressHomeLoans.com, a provider of your Austin Home Loan as well as high quality financial services. Our mortgage professionals will work to ensure that you get an Austin mortgage that is tailored specifically to meet your needs.
