With interest rates near historically low levels, the recurring question homeowners are asking - 'Should I refinance my mortgage?' Answers will vary depending upon individual factors. A few common reasons to consider include available interest rates (potential rate relative to current loan rate), current loan (i.e., Adjustable Rate Mortgage), how long you anticipate remaining in the home, direct costs associated with refinancing (i.e., fees/closing costs), etc.
BREAK-EVEN ANALYSIS.
The most common method of assessing the potential benefits of refinancing is a break-even analysis. This is a process that estimates the amount of time it will take (through interest savings) to "break even" on the upfront costs associated with refinancing the loan. Obviously, in order to justify refinancing, the benefits need to outweigh the costs. Several [free] online calculators are available to assist you in breaking down (and simplifying) this analysis - Dinkytown, Fair Isaac, and Zillow are popular examples.
CURRENT INTEREST RATES.
Although interest rates have crept up in the past couple of weeks, interest rates are still very favorable (under 5% on 15-year mortgages). Bankrate.com is a great tool for finding current rate information. The rate available to you will depend upon your creditworthiness/credit score (a score over 740 will get you the best rate).
COSTS.
Many consumers view loan costs as fixed. If you go in with this mindset, you will wind up overpaying for your loan. Some simple tips: (1) Get a quote from your current lender, they will obviously have less "work" to do to qualify you than a company with which you've never done business; (2) Get quotes from multiple companies - you will be amazed at the variability in fees from company to company; the information you'll obtain will provide leverage in working with your ultimate "choice," and; (3) Get a quote from an online company; see #2 above. Information is power, but in this instance, the difference in fees is often amplified as online companies can typically offer lower fees because they don't have the same costs that a brick and mortar lender would have. Use this leverage to your advantage!
GOVERNMENT ASSISTANCE.
If you are in a situation where you may not meet ideal refinancing conditions as defined by a lender (owe more on the home than it is worth), you may still be able to benefit from the current interest rate environment. Pres. Obama has passed "Homeowner Affordability" initiatives to aid homeowners in refinancing unaffordable mortgages. If you are not eligible for a government-assisted refinance, you may be eligible for a loan modification. Information on the current government programs is available at:
-- Government Refinance Assistance
-- Making Home Affordable (eligibility requirements)
