January 9th, 2009
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.
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This is indeed a great time to refinance your home as long as you qualify, and for most people who do qualify there is almost no reason not to take advantage of the current situation. Historically speaking these are more or less the lowest rates ever offered on fixed rate mortgage products. Whether your trying to move from an adjustable rate mortgage to a fixed rate loan, moving from a fixed rate to an even lower fixed rate, or whatever your situation, interest rates are incredibly low right now.
One question I have noticed almost every person who is considering refinancing is asking is: “Should I do this now, or wait until rates go lower”. My answer to that question is simple: Nobody can really accurately predict what interest rates are going to do 1 week, 1 month, or 1 year down the road. They may go down further or they may not. What you should know is if you do refinance now, you will be getting one of the best rates ever offered on a fixed rate mortgage, and if you wait, you could potentially lose out on this great opportunity and if rates do go down significantly lower in the future you can always refinance again if it makes sense.
Jeremy DeLembo
Mortgage Consultant
It is a great time to refinance for those with good credit, equity, and debt ratios. Borderline borrowers may want to research FHA refinance loans.