A second bite at the refinancing apple

November 06th, 2013

On October 29, the S&P/Case-Shiller Home Price Indices announced that housing prices had recovered to roughly their mid-2004 levels. The next day, the Mortgage Bankers Association announced that refinancing activity had risen 9 percent over the previous week. The two are not unrelated.                        

Rising prices and falling rates

Part of what is happening is that those rising home prices are bringing more and more homeowners back to positive equity, or owing less than the current value of their homes. This helps make them eligible for refinancing. In fact, with prices back to mid-2004 levels, most homeowners, except those who bought during the very peak years of the housing boom, should have enough equity to refinance.

The question, then, is one of whether current mortgage rates are attractive enough. After rising from early May through late August, rates have now been falling for the past two months and reached 4.10 percent as of the end of October. This may be the second chance at refinancing many had hoped for.

What about you?

Could the combination of rising home prices and low mortgage rates be creating a refinancing opportunity for you? An amortization schedule and a mortgage calculator could help you figure it out.

Based on recent, comparable home sales in your area, come up with a reasonable estimate of your property's current value. Then compare this amount to the principal balance remaining on your mortgage, according to your amortization calculator. If your house is worth more than what you still owe, you may be in position to refinance. If your house is worth at least 20 percent more than what you owe, then you should be in an excellent position to refinance.

Next, use a refinance calculator to compare current mortgage rates with your original rate. Factor in any fees and expenses that are likely to be involved with refinancing and, if you could lower your total payments at today's interest rates, you should start contacting mortgage lenders to get some specific quotes.

You may have thought the opportunity to benefit from rising home prices ended years ago, and that the opportunity to benefit from low refinance rates had started to dry up earlier this year. In both cases, recent conditions have been giving homeowners a second bite at each apple.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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