Hope you had a fantastic weekend, folks! (If you happen to be a fan of the New York Mets, however - our condolences!)
Assuming credit markets calm down a bit with the Financial Bailout which should be clearing Congress in the next few days, is NOW a good time to consider refinancing your mortgage?
Will mortgage money be more plentiful should the plan to remove bad loans from the balance sheets of lenders across the country be enacted?
This week, average mortgage rates around the Chicago area ticked up a bit - now hovering around 6%, on average. After the Fannie Mae and Freddie Mac bailout of a couple of weeks ago, however, they fell sharply.
For the week ending September 12th, re-fi's accounted for nearly half of all new loan applications, up from just over one-third the week before. Figures aren't available yet for the post-bailout-proposal period, but we would imagine they may have fallen a bit, on average.
What will be the new rule of thumb, however?
Before recent craziness in the credit and mortgage markets, lenders would typically recommend re-fi if the owner lived in the property at least two years, planned to stay at least two more before selling and moving on, and the current interest rate was at least a two-percent improvement over the homeowner's current loan.
More recently, lenders have suggested refinancing as a good option if the projected monthly savings is $100, and if break-even on closing costs (estimated as high as $2,000) can happen within one year.
Many lenders also suggest a shorter-term loan - 15 years versus the more common 30 year amortized loan - to save thousands of dollars in interest cost over the term of the loan.
Doing the math is only a part of the equation, however.
For one thing, far tighter loan underwriting standards means it might not be as easy as you think to qualify for a new mortgage. Your FICO Credit Score often need be a minimum of 740 - considerably above average - to qualify for the best rates and terms.
Also, lenders are very closely scrutinizing property values on refinanced homes. Detailed appraisals are usually required - simple "drive by" or "desk" appraisals are rare. Appraisers' evaluations are now considering unsold homes nearby, as well as nearby short sales and foreclosed properties. Indeed, your own opinion of your home's value may be considerably higher than the figure the professional appraiser arrives at.
During housing boom times, many refinancing homeowners took cash outwith their re-fi loans, to fund everything from home improvements, to vacations, to start-up businesses. Approval for cash out loans today is rare, as banks are wary of these equity-depleting loans.
If you have less than 20% equity in your home, or are close to the 20% threshold, expect to pay Private Mortgage Insurance, which protects the lender should you default on your loan. As home values in some areas around Chicago continue to weaken, banks want to avoid losses should the market value of your home fall. PMI may add over $100 per month to a $250,000 mortgage loan payment, depending on the credit credentials of the borrower.
Nothing in the current Bailout Plan suggests that underwriter scrutiny for approving loans will be made more lenient - at least, right away.
So, given this, which homeowners are the best candidates for re-fi today?
Generally, those who have owned their homes at minimum of three years have acceptable levels of home equity for refinancing, so long as their original down payments were sizable, and they have not refinanced within the past couple of years.
More recent purchasers - within the last two years or so - or those who have recently refinanced their mortgage, typically have little equity built up, due to the current declining market in many neighborhoods and suburbs. This is especially true for those who originally purchased with a low down payment. For some with low equity, current rates may actually be higher than your old mortgage interest rate, making refinancing a poor choice.
The coming days and weeks will give us a bit better direction here.
See our post today at BlogChicagoHomes.comfor more information, as well as a link to Mary Ellen Podmolik's story in last Friday's Chicago Tribune.
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Home owners who are considering refinancing really need to understand their options and talk with a knowledgeable consultant about whether or not it is in their best interest.
Since you will have to pay fees and closing costs when you refinance, there are certain things you should look for when trying to find good refinance MORTGAGE rates so that you get the most benefits from refinancing.
When you refinance your MORTGAGE , you need to consider that you will have to pay closing costs and other fees like points. Though, many mortgage lenders are now waiving those fees to encourage homeowners to refinance. Be careful, though, because your refinance mortgage rate may not be as good when you do not pay closing costs. Shop around to find the best mortgage refinance rates whether you are looking to avoid closing costs or not. Shopping around is till the most effective way to get the best mortgage refinance rates.
What MORTGAGE refinance rates you are eligible for will depend mostly on your credit rating. If you have good credit, you will probably find several lenders vying to offer you a low refinance mortgage rate. Since most experts recommend that you only refinance when the refinance mortgage rate is two points lower than what you are currently paying, having good credit will work in your favor.
However, if you have less-than-excellent credit you will first need to examine whether or not refinancing is in your best interest. With poor credit you will definitely pay higher mortgage refinance rates. With very bad credit, you may find it difficult to refinance at all. However, there are some things you can do to improve your chances at getting qualified and obtaining the best refinance mortgage rate possible...