Is It Time to Refinance?

If you are homeowner, you have no doubt been watching home prices and the subprime mortgage driven collapse of the financial services industry. But with all the economic distractions, have you noticed that the 30 year fixed rate mortgages hit a historical low this week? That fact can be lost on many who worry about the current value of their homes; but you have to realize this is the lowest rate environment on record. Consumers who plan on staying in their homes, or ones with variable rate loans, should seriously consider refinancing their home.

These historic low rates are a by-product of the Federal Reserve’s and Treasury’s efforts to bolster home prices, un-freeze the credit markets, and pull the economy out of recession. As a savvy consumer, you should know the interest rate reduction you need to save money on your mortgage. These savings will be substantial over the duration of your loan.

The refinance rules have changed so here are some additional tips should you consider refinancing:

• Have Good Credit. There are no more subprime mortgages. Most likely subprime mortgages are a thing of the past. If you have poor credit and want to refinance, you need to start improving your score.
• Have Equity in your Home. Like the subprime mortgage, 100% financing is generally no longer an option. This means you should have some equity in your home before you consider refinancing.
• Have the Proper Debt-to-Income Ratio. In the housing boom, debt to income ratios (DTI) were pushing 50% for many loans. Today, you should plan for the more conservative and traditional DTI ratio of 38%. This also means you should have an income, that is, no more stated income mortgages.
• Have proper paperwork. Most refinances will require proof of the last 2 years of your income and employment, so be sure to have 2 years of W-2’s, 2 of your most recent paystubs and proof of 2 months of mortgage payments in the bank. The quicker you can get approved, the quicker you can decide to lock in your rate. Don’t let paperwork be the hinderance to getting the low rate you desire

If you meet these criteria, you should either be refinancing or monitoring the rates to see when you should refinance. You can check the daily mortgage rates on Credit Karma.