Refinancing is becoming a volatile endeavor for homeowners. Mortgage rates have continued to plummet, allowing many homeowners to undergo a period of constant refinancing to cut the extra dozens – to hundreds – off their mortgage payment. However, it’s never as cut as dry as simply seeing a low interest rate and then jumping to refinance with your mortgage.
Depending on what kind of loan you have, the refinancing options are going to vary – for example, refinancing a USDA loan is going to have different requirements than refinancing a VA loan or refinancing an FHA loan. Guidelines seems to be more important than ever – and for the first time, there are other key considerations to keep in mind when entering into the agreement than just “what is the interest rate today?”
Considering Closing Costs
Closing costs tend to add two to four percent to the overall loan value. Most consumers will add this amount to the lifetime amount of the loan, but if your interest rate reduction is miniscule, the pain in the neck this can cause on top of the closing cost might actually mean your expected value (also known as EV) may result in a net loss in the reduction, especially when you consider the value of your time.
Can You Even Qualify for A Refinance?
Many homeowners may misappropriate their actual ability to refinance a home. If you’re underwater on your loan, it’s unlikely that you will be able to qualify for a loan unless you fall under the new HARP program designation, which allows you to refinance a Fannie Mae or Freddie Mac loan that was sold to them on or before May 31st, 2009. This is, of course, if you are current on your mortgage, as the program is meant to benefit homeowners who faced unfortunate side effects of a sliding housing market.
Similarly, if you have bad credit, few banks will offer you an interest rate that matches the current conditions of the market. Just because you see a low mortgage rate nationally doesn’t mean that your 520 credit score will secure you a great interest loan.
Is having a home even the right long term option?
Many homes are meant to be an investment, but with the crash and the erratic state of the market, it may behoove you to just not move forward with refinancing and instead look towards renting as a better option. Are you making less money because you are stuck in one place at a dead end job? What if you could make $30k more at a position that you had to relocate for? Saving just a hundred or so over a year might not be the right long term decision for your life, family and financial record.
Refinancing – Not So Fast
Refinancing is a great option for the right person. People with job stability, a health mortgage and credit score, and etc can all benefit from the current mortgage rates. They probably won’t last forever, but who knows – these rates continue to oscillate with the volatile market conditions. Keep an eye on your rate target, be financially smart and then act accordingly to best benefit your financial future.