Beat the Rush by Refinancing Now

It remains to be seen how many borrowers and lenders will take advantage of the government's HOPE refinancing program, scheduled to become effective on October 1st, 2008. The program is intended to help borrowers who are on the edge of foreclosure, and by extension, enable lenders to recoup more of troubled loan balances over time than they would if borrowers simply defaulted. However, there may be reasons for many other borrowers to look into refinancing even before the HOPE program becomes available.

The Federal HOPE Program

With home prices declining, a significant obstacle to refinancing for many homeowners is that they now owe more than the value of their homes. This could prevent some homeowners from pursuing refinancing strategies that would lower their monthly mortgage payments. These strategies include refinancing from adjustable to fixed interest rates, stretching repayment out from a 15-year to a 30-year loan, and seeking lower interest rates when available.

Under the HOPE program, the government will provide backing for certain refinanced loans if both lenders and borrowers are willing to make certain concessions. While it remains to be seen how many lenders are willing to write off part of what they are owed, the launch of the program seems likely to create a rush of refinancing applications.

This rush of applications could slow the refinancing process even for borrowers who don't need to be part of the HOPE program. Therefore, if you were thinking of refinancing, it may be wise to beat the rush by applying before the HOPE program becomes effective.

Lower Payments by Resetting to 30-Years

For borrowers who have several years of mortgage payments behind them, the HOPE program may be less relevant than other strategies to lower monthly payments. For example, it doesn't matter if you originally signed up for a 15-year or a 30-year mortgage; once you've been paying for 15 years, you are essentially left with a 15-year mortgage on your remaining balance. Resetting this to a new 30-year mortgage would cost more in interest over the long run, but it could make a crucial short-term difference by making monthly payments more affordable.

Keeping an Eye on Interest Rates

Another compelling reason for refinancing sooner rather than later is trends in interest rates. Interest rates have been rising since the early part of the year, and with inflation reports coming in at high levels, there is likely to be further upward pressure on interest rates. A delay in refinancing could prove very costly.

After all, even if you are refinancing for reasons other than capturing a lower interest rate, the current rate will have a big effect on your mortgage. If you are trying to stabilize payments by switching from an adjustable-rate to a fixed-rate mortgage, you'll want to lock in as low an interest rate as possible. If you are trying to lower payments by extending out to a 30-year mortgage, that longer loan term makes the interest rate all the more important. Find out how much you can save by refinancing now.

Posted By :
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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