Deciding if a mortgage refinance is right for you
Interest rates on 30-year fixed-rate mortgages are expected to end 2012 at a very low 4.2 percent, according to the Mortgage Bankers Association. At press time, they were well under 4 percent for the most attractive borrowers. If you’re considering refinancing your mortgage to save money, you have some time, but the deals won’t last forever. Here’s a checklist to run through to determine if it’s the right time to go shopping for a new mortgage loan.
1) What shape is your credit in?
The best rates and the lowest fees go to those with great credit scores. It’s worth pulling your FICO score and credit reports before you shop around to test if your score is above 720. The official site to receive a free credit report is http://www.annualcreditreport.com.
2) How much is your home worth, and how much do you owe?
Ask your real estate agent for a list of comparable recent sales in your area. If you’re underwater, meaning the current market value of your home is less than the value of the current loan, you’re unlikely to get an attractive refinancing offer. If your loan is smaller — $100,000 or less — you’re unlikely to save much money by refinancing.
3) Are you selling soon?
“It normally takes over 10 years to make your money back when paying a lot of points and fees” on a new mortgage, says Fred Arnold, public relations chair of the National Association of Mortgage Brokers. “Paying points” means you give the bank money up front in exchange for a lower interest rate, something you shouldn’t have to do in today’s record-low climate. Nonetheless, the fees on a refinancing, known as closing costs, can still run to thousands of dollars. Your savings on monthly interest cost may not offset the closing costs if you sell the home and buy a new one within a couple of years.
4) Are you willing to drive a hard bargain?
“Everything’s negotiable, especially if you shop the loan around,” says Arnold. Available rates change often, even multiple times a day, so it makes sense to get several quotes. At the same time, changes to federal rules in the wake of the housing crisis may have made it harder to get the best deal. For example, the government mandates that a broker offer the same rates for borrowers in similar financial situations to crack down on predatory lending, but Arnold says that has made lenders leery of waiving any fees.