When I listen to the radio or turn on the television these days, there are many commercials touting historically low interest rates are and that it is a great time to refinance my mortgage. Well the truth to the matter is “Rates are great!” Rates are at historic lows and refinancing today could make a big difference in the amount of interest you will pay over the life of your mortgage. But the real question should be, is it right for me? And then the answer is, it all depends.
There are several factors that need to be explored such as the cost, the reduction in interest rate, the reduction in the term of the loan, will the new loan require mortgage insurance and most of all, can I even refinance my home today based on the current market value of my home (appraised value).
There is a formula called the break even analysis where you divide in the closing costs by the amount you will save each month and this will tell you in months the amount of time it will take to recapture your closing costs. So let’s say the closing costs to refinance your home is $3,200 and you are saving $180 per month. Your break-even would be approximately $3,200/$180 or 17.78 months. This will give you an idea if it makes sense to go forward. The next crucial question is how long do you think you will own the home. If you think you will own it for at least another 18 months, then it makes senses to look further.
One of the most challenging obstacles to refinancing your home today is the appraisal process. Unfortunately, the values of homes have dropped considerably in the past 5 years. According to Trulia, real estate prices covering all properties in the Atlanta area have depreciated 20.1% over the past five years. Since real estate trends are very localized, some area have been depreciated far more. In order to refinance you home using standard loan products, you will have to have a minimum of 5% equity in your home. So if your house appraises for $200,000, the maximum loan you could get would be $190,000. The good news is that there are several programs available for homeowners with little or no equity left in their homes. So depending on the type of mortgage you currently have, you might be in luck.
If you currently have a FHA or USDA mortgage, there is a streamline refinance that does not require an appraisal which is a great option. Depending on when you current FHA mortgage was endorsed by FHA can make it a fantastic option or just a pretty good option. If your loan was purchased by either Fannie Mae or Freddie Mac and you closed on the loan prior to May 31, 2009, you may be eligible for a HARP (Home Affordable Refinance Program) refinance. The main feature of a HARP refinance is that it allows you to refinance you home even if you are upside down on your mortgage. To see if your loan was purchased by either, go to http://www.knowyouroptions.com/loanlookup for Fannie Mae properties and https://ww3.freddiemac.com/corporate/ for Freddie Mac properties. There are many rules governing these programs, so it is best to speak with a mortgage professional regarding your options.
George Beylouny is a licensed loan originator and the Branch Manager for Silverton Mortgage Vinings. He can be reached at 678-428-6514, George@mgatl.com or www.mortgageguysatlanta.com