Refinance or not?

Refinance or not?

Last week the rates dropped to yet another low. If analysts are correct, we should see mortgage rates below 6% for the next few weeks and possibly a few months.

These same analysts emphasize the rate will also rise. Typically when this happens homeowners march out and refinance their mortgages, to claim a better rate.

Is a lower rate a reason to refinance?

Maybe, but maybe not. Before refinancing a borrower should consider the overall cost analysis. Refinancing a loan means closing costs. If they aren’t paid up front they will need to be rolled into the new loan. That raises the loan balance. Is this really a good thing?

Many homeowners who purchased in the past 12-24 months may have 1st and 2nd mortgages combinations with blended rates well over the mid-to-high 5% rates available now. Refinancing these WILL result in a more costs and the borrower still needs to have at least 5% equity in the home.

If a borrower is currently in an “interest only” first loan, a refinance into a fully-amortized loan, even at a rate 1% lower, will see a payment increase.

Bottom line, think, evaluate and understand what you are doing before refinancing. After all the final responsibility is up to you. Don’t screw it up!

Be smart like a fox, do what’s best for you and your family.

About the photo: I captured this shot today while walking in the park. This fellow came directly at me, I think he was wanting a Thanksgiving snack! I didn’t have one for him, so he went off the other way.

About the Author

Kristal Kraft
Kristal has been helping buyers and sellers in Colorado since 1984. She enjoys sharing her knowledge of the Metro Denver Real Estate market via blogging and in person while driving around the beautiful Rocky Mountain town of Denver! For fun, Kristal enjoys shooting things with a Canon. Visit Denver Photo Blog

Allyson Zacharko

Posted January 10, 2009 at 3:18 pm | Permalink

It is interesting how perspectives change so quickly. In just two months, 6% or even 5.8% seems outrageous since some FHA loans are now 4.875%. Our broker commented this week that the projection is interest rate may be back up to as high as 7% by the end of the year.

Who can say? But buyers can and should enjoy it while it lasts.

Allyson Zacharkos last blog post..FHA – Today’s Best Mortgage Deal?