Mortgage Refinance: Can you Afford to Wait?

When The Stock Market Rises, So Do Refinance Mortgage Rates

Generally, as the stock market rises, so do interest rates. The market has been moving higher on news in late July and early August that fewer new unemployment claims have been filed than were expected, productivity is up, pending home sales (signed contracts that have not yet closed) are up, and mortgage applications are up. These facts taken together may indicate that interest rates will rise if the economy is perceived to be in the early stages of recovery.

What if Refinance Mortgage Interest Rates Do Not Rise?

Interest rates will rise, and historically when they do it happens much faster than when they fall. In other words, you may have very little time to act. If that happens you will have left money on the table. Unless your mortgage refinance closing costs are so great that they wipe out any savings you might realize between your old and new interest rates, each month you do not refinance is a month in which you wasted money. Even if interest rates do not rise in the next few months or even by year's end, it is better to act now than to wait, for it is unlikely that rates will decrease, while the potential downside is pretty huge--increases being far more likely.

Why Might Home Values Decrease Further?

Two arguments that contribute to the theory that home values might continue to decrease both have to do with excess inventory. Yet the arguments are diametrically opposed. The first argument is based on the idea that the economy may be turning around. This argument believes that homes are being held off the market by banks and individuals because no one wants to sell at the bottom. Yet, when these properties become available, they might overwhelm demand, causing prices to continue to fall. This phenomenon is sometimes referred to as "shadow inventory."

Supported by a recent report by Deutsche Bank that suggests that by 2011, 48 percent of homeowners will be upside down on their mortgages, and by a New York Times article reporting a continuing upward trend in defaults which are at an all time high, another argument sees that the economy is not turning around and predicts many more homes will go into foreclosure, glutting the market with inventory.

Whether or not you agree with either of these possible scenarios, or expect something entirely different, saving money on your mortgage is always a good thing, and now is the opportunity to make lemonade from this lemon of a recession.

Consider your Needs and Motives for Refinance Mortgage

A recently published study by California State University, Fullerton finance professor, Michael LaCour-Little, looked at 4000 foreclosures in Southern California for 2006-2008. What LaCour-Little reports is that the average acquisition occurred in 2002, well before the market peaked, and that the original average loan-to-value was 84 percent. What got these borrowers into trouble was that they refinanced all the equity out of their properties until in some cases they owed 150 percent more than the value. That kind of refinancing is a thing of the past, so the moral of the tale is not that you should avoid refinancing, but rather that you understand your needs and motives and how to make refinancing work to your benefit, as it certainly can.

Find Out if you Qualify for the Home Affordable Refinance Program (HARP)

You may qualify to refinance your mortgage through the federal government's Home Affordable Refinance Program if you:

  • Have a current first mortgage that is owned or guaranteed by Fannie Mae or Freddie Mac

  • Are current on your mortgage payments

  • Do not owe more than 125 percent of the value of your home on your first mortgage

  • Have the ability to repay the refinanced loan

  • Will be in a more stable financial position after the refinance than before

If you need cash from your home for necessities, HARP is not what you want. Although you may end up with more money in your pocket each month due to a better interest rate, the only cash out you can get is enough to cover your closing costs plus an additional $250.

One of the easiest ways to get more information on conventional or government sponsored refinancing is to fill out our form. Up to four lenders will contact you to help you with your questions and step you through the refinance process, then you can use a refinance calculator to analyze your options.


Posted By :
Lorraine Watkins is a regular contributor to business and education websites. She is a notary in California specializing in loan documents. She holds an MA in English from California State University, East Bay.

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