Feb 22 2009

Five Reasons to Refinance Now

The Federal Reserve has lowered its interest rates several times during this current economic crisis.

As a result, mortgage interest rates have begun to fall, and hundreds of thousands of homeowners have sought re-financing for a variety of reasons.

Besides being afforded the opportunity to save money (which is critical during this recession, so long as you are sure you are not incurring more risk), here are five other reasons why refinancing now is considered to be a goodidea.

1.  It takes advantage of lower interest rates to replace the higher rate you may be paying now.

2.  Refinancing from a 30-year to a 15 or 25-year mortgage will substantially yield savings as well.

3.  You can switch from an adjustable rate mortgage to a fixed rate mortgage.  Since the stock market has been so volatile of late, reassessing your mortgage loan is appropriate at this time.

4.  Some homeowners decide to refinance so they can pay off debts such as credit cards, student loans, or medical bills.  In addition, they may apply for refinancing if they decide to make improvements to their home, providing additional equity in the home. (Again, be careful about the reasons you want to re-fi. You don’t want to end up in worse shape than before).

5.  Refinancing is needed if the mortgage you are holding has a balloon provision that does not carry a conversion option.

Regardless of why you would choose to refinance now, it is not going to be all smooth sailing even if the interest rates are very favorable. There is a sea of paperwork and fees to wade through, and there may be rocks and sharks. So take time to research lenders’ rates, fees, and other conditions that apply.

In addition, before refinancing, it is important to ensure that you have paid down some of your debt.  This is particularly necessary since most lenders today will not offer lower interest rates if the FICO score is below 750.

Since the entire purpose of refinancing is to avail yourself of lower interest rates, anything you can do beforehand to improve your credit score and bring your overall credit rating up to excellent according to the lenders’ new standards, is worthwhile.

Refinancing one’s home during a recession is not to be taken lightly.  You need to look at your financial status and decide whether or not you can afford to do so at this time.

You also need to ensure that your job is secure, and that you have not missed any debt payments that could underscore the bank’s reluctance to offer lower interest rates during the refinancing process.

Learn as much as you can about refinancing.  Call several lenders and arrange an appointment with each. Then compare each option side by side in a table or graph in terms of terms, fees, any up front costs, and so on.

Use this comparison to help you decide on the company that offers the best rate and terms that will comfortably fall within your financial situation, and present and future prospects.