Thinking of Refinancing?


Pretty much the only good thing about the tanking economy is that interest rates are down.  Not such a good thing if you’re saving and investing, but potentially helpful if you want to refinance your home.  Over the last years lenders have been approving some pretty crappy loans.  If you have one of them, want to lower your interest rate, or just want to take some cash out, now might be the time to think about these advantages:

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1.    Refinance out of a bad loan. The spike in foreclosures lately is due largely to bad loans, rather than the state of the economy.  A lost job or decrease in portfolio may just be the catalyst for mortgage payment delinquency.  If you are in a loan that could get you into trouble, but still have a good credit rating and a job, now might be the time to think about getting into a safer product.  Even if you’re in a pretty favorable Adjustable Rate Mortgage (ARM) or Interest Only (IO) loan, rates on fixed-rate mortgages are so low that the switch to a safer product might be financially wise.
2.    Lower your interest rate.  If you bought your home in the eighties and haven’t refinanced since, you’re in for a treat.  You may be able to get an interest rate less than a third of what you’re paying now.  Of course, if you bought your home more recently you won’t see quite such a bonanza, but if prevailing interest rates are more than 2 percentage points below what you’re paying now, it’s probably worth looking into.
3.    Cash out.  If you have significant (read: more than 20%) equity in your house and are struggling in this economy, you might want to think about doing a cash-out refinance.  This allows you a potentially lower interest rate on your mortgage and some cash in your hand.  This can be a very risky strategy, however.  If you live in an area where home values have been declining, you may not have enough equity.  Additionally, and for a nice change, lenders are VERY picky about who they approve.  You’d probably need excellent credit, stable income, and a large percentage of equity to be approved.  Nonetheless, it may be worth considering if you’re planning on refinancing anyway.

These days it’s pretty difficult to get a loan.  All the stars (or in this case, financial criteria) have to align before you can get approved.  Use resources like bankrate.com and lendingtree.com to help you find lenders willing to accept your application.  Happy hunting!

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