Should I Refinance Now?

The more I read, the more the message keeps hitting me over the head; refinance now, rates are at historic lows! Sure, it sounds good but is now really the time.

Well, the fact is you may have no choice but to refinance sooner rather than later.

Let’s say you bought a home in 2003 for $400,000 and since you put 30% down, you would assume there is plenty of equity to refinance. Before you pull the trigger on a refinancing you stumble upon an article which states interest rates will continue to go lower. So you figure, I’ll just wait and see how much lower they can go.

Problem is, depending upon what part of the country you live in, home values may decrease another 15% or more in 2009. Choosing to refinance now might be your only option because you may not have enough equity to make it worthwhile in the future.

As you recall in our earlier blog, http://kotarnews.com/2009/01/do-they-qualify-for-lower-interest.html, banks/lenders have implemented “risk based pricing”. In a nutshell, it states the interest rate you have with 20% equity WILL be higher than one if you have 40% equity.

From my point of view, if you are dropping from a 30 year fixed to a 15 year fixed and you can afford it, then do it. If you are trying to lower your 30 year rate from “x” to “y”, look at the time it takes to pay back the difference in your monthly mortgage payment vs how much you paid in closing costs.

Huh you say? If you lower your monthly mortgage payment by $200 and the closing costs = $5,000, you would divide $5,000 by $200 = 25 months. That means you will notice the difference in payment after your 25th month.

If you do not intend to live in the home that long, refinancing may not be for you.