To Refinance or Not to ?

28 Feb

To refinance or not? That is the question, and it’s one question that I hear almost as much as the word “facebook“. But seriously, even President Obama made a point in his State of the Union address in early February to urge Congress to implement legislation regarding refinance opportunities for everyone, especially for responsible homeowner’s who have a good payment history.

According to CoreLogic, a leading provider of consumer, financial and property information, analytics and services to business and government , an estimated 28 million homeowners could cut the interest rates on their loans by more than one percentage point if they could refinance. That is a staggering amount of savings!

It’s not a bad idea to consult with your financial advisor/tax preparer/real estate agent. Here are a few key things to consider:

1. Make sure you are in good standing on your mortgage. As the President emphasized, refinances will be considered for those homeowners who have a good payment history and are current on their mortgages. If you’re currently underwater, a refinance is probably not an option for you. Consult your real estate professional about other options, including loan modifications and short sales.

2. Check your current credit score. Refinance candidates need to demonstrate steady income and good credit. Make sure your credit rating is up to snuff and see what immediate measures can be taken to improve it if it’s not.

3. Examine how much longer you plan to live in your home. If you are planning to put your home on the market in the near future, refinancing probably doesn’t make sense. You need to make sure you’ll be living in your home long enough to recoup the closing costs of the refinance.

4. Consider the length of the loan. Where you’re at with your current mortgage can play a significant role in your decision to refinance. If you’re close to retirement, for example, and your loan is almost paid off, refinancing could result in extending the life of your loan, ultimately costing you more. Also, if you’re several years into a 30-year mortgage, your goal should be to refinance into a 15- or 20-year mortgage instead. Otherwise, you’re extending the number of years in which you’ll pay interest. Your refinancing goals should be short-term and long-term savings.

5. Find out the costs involved. Before you plunge into a refinance, find out the costs involved. Weigh these fees against the money you will save (contingent upon how long you plan to stay in your home) to make sure refinancing is the right step.

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