Is refinancing right for you?

Is refinancing right for you?

Any homeowner or real-estate investor is awash in confusing information these days — from speculations about where the market is headed to trying to find a lender to finance a home loan. Added to the mix are the myriad letters, fliers and telemarketers touting that NOW is the time to refinance, that rates will NEVER be lower and that they have the BEST DEALS for you.

Refinancing is when a lender recasts an existing mortgage as a new loan at a lower interest rate. This may result in lower monthly payments and savings over the life of the loan. We asked two Rogue Valley mortgage brokers for the inside scoop on refinancing in today's market.

The costs involved in a refinance depend on the size of the loan and include fees from the lender, title company and appraiser, as well as a small fee for a credit report. Before moving ahead, most brokers will determine how many years it will take the homeowner to recoup these costs. If the numbers work out, a loan application will be completed. Once that gets the green light, an appraisal is ordered; if the property appraises high enough, the refinance may be possible.

A homeowner whose mortgage interest rate is "in the high 5s or 6 range" could benefit from refinancing in today's low interest-rate climate, says Mary Shields, branch manager and senior loan consultant at Evergreen Home Loans in Eagle Point. "If you can cut your rate at least 11/2 percent and are planning to stay in your house for 15 years or longer, the effort and fees may be worth the long-term savings."

Homeowners who are "upside-down" — who owe more on their mortgage than their home is worth on today's market — likely will not be eligible. A few years ago, people were refinancing all the time and would use the money to pay off other debts.

"Those kinds of loans are gone unless you have a house you don't owe very much money on, and that's rare these days," says Kevin Eyman, president of Mountain Mortgage of Oregon in Medford.

And brokers and lenders have never been more persnickety about credit scores and debt-to-income ratios. But don't let that stop you from making a call to a trusted professional. With rates lower than they've been since 1971, says Eyman, "if you don't know, it doesn't hurt to call."

Where does a homeowner get help refinancing? Calling the licensed broker who first wrote the mortgage is a good place to start. Another general rule is to avoid calling the current holder of the mortgage.

"It's almost like the lender looks at it like they're not shopping anybody else, so we're going to charge them more," says Eyman. "It's not right, but it's reality."

Resist offers that sound too good to be true. These offers — often touted by mailings and telemarketers — are likely to have expensive strings attached. A homeowner may discover the low interest rate mentioned turns out to be an adjustable-rate mortgage or a balloon payment.

"Most people want to get involved in a fixed-rate mortgage, and you just never know what these other offers really are," warns Shields. "Plus, most people don't want to send their personal information to someone they don't know."

How does a refinance happen? During a phone call, a mortgage broker will ask the homeowner for some basic information: when the property was purchased, what is owed, their monthly payments, a rough idea of credit scores and an employment overview.

Most of the time, a good broker can "see right away" whether they can help, says Shields. "The first thing I look at is how long you have owned the property. If you bought at the height of the market in 2006 and financed at 100 percent, you're upside-down, and there's really no opportunity to refinance."

Because values have gone down as much as 40 percent on some higher-end properties, it's not unusual to find Rogue Valley homeowners in this situation. Other stop signs to a refinance are credit problems, unemployment and missed payments.

But if there's equity, if it's going to save the homeowner money and if the time it takes to recoup the costs makes sense, it's time to fill out a loan application.

"That's when we look at the current debts you might have because the debt-to-income ratio has to work," says Shields. "We make that determination ahead of spending any of your money on an appraisal."

If numbers crunch out right, says Shields, the broker will "put our closest number to the home's value, call an appraiser and it becomes a leap of faith where we jump ahead to see what the home is worth."

The appraiser makes the final determination, and if the house is going to be compared to nearby foreclosures or short sales, the property may not meet the value it needs to be eligible for a refinance.

There were times when refinances were "just easy deals," says Eyman, but these are not those days.

"I know it's going to be tough for people who have lost work or are upside-down," he says. "But along with the different times, there are also more options."

Share This Story