Wouldn’t it be a nice world if you could restructure something like a prison sentence? "Hey judge," you might say, "I can give you 10 years, but I really need to be out in time for the 2018 Super Bowl—what about sticking me in solitary for a year or so instead?"
While mortgages aren’t prison sentences (or so some say), they do offer you the chance to renegotiate terms and structures. What a world. But with the credit crunch still squeezing and the Feds trying about anything to goose the economy, is now the best time to refinance? As with most real estate questions, the answer is a definite maybe.
 |
>After climbing at the beginning of October, mortgage rates dropped and have evened out in previous weeks. That’s good, right? Again, maybe. Mike Platt, a local mortgage refinance specialist, says that homeowners need to look past interest rates and ask themselves two questions. First, how long are you going to be in your house? Second, what are your goals with refinancing?
Rule No. 1 is simple: If you’re already halfway out the door and planning on moving within, say, the next year, refinancing probably isn’t going to save you any money. In fact, it will most likely cost you. Once you factor in the closing cost of refinancing against a reduced monthly payment that you’re going to leave behind soon, you might end up with a net loss. And nobody likes net losses. They’re just terrible.
That said, if you’re staying put, now is definitely the time to consider refinancing your mortgage. Rates are stable, and if your house has a nice chunk of equity, a cash-out mortgage could bring down monthly bills even if your monthly mortgage payment stays the same, or even increases a little bit. Here’s how: By pulling some cash out of your home, you can pay off other bills with the lump sum and say goodbye to other monthly payments.
"If a person has enough equity in the house," says Platt, "they might be able to do a cash-out refinance, get rid of mortgage insurance, especially if a person has a first and a second [mortgage] or they have one loan with mortgage insurance, they could pull some cash out, and actually lower their monthly payment slightly or keep it the same but also pay off $300 or $400 a month in debt."
Sounds great, no? Especially if you’re one of the millions of people who have an adjustable rate mortgage that is set to readjust (a nice way of saying "blow up") soon. But hold on, Mr. and Mrs. and Miss and Ms. ARM. By keeping a close eye on local mortgage rates, which are currently low and stable, you might be able to squeeze more money out of your low, low introductory rate.
"If somebody is a year away from a five-year ARM starting to adjust, and they might be at 5 percent right now, and they know they’re going to be in the house for six more years, what I’d say is that as long as rates are staying stable, and it’s just a straight rate-term refinance, I would watch the rates," says Platt.
"As long as rates don’t start going up, you might as well take advantage of that 5-percent fixed rate. When you have a lower interest rate like that, two things happen. One is that you lower your monthly payment. But the second thing is that if you look at the amortization schedule, more dollars per month are going to paying off the principle." So if your rate isn’t set to adjust for another year, try to squeeze as many low-rate months out of that sucker as you can while keeping an eye on rates, ready to refinance if they start to climb again.