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Feb 14

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Have You Considered Refinancing?

00009123Interest rates have been near historical lows in the recent past.  Even though they are not at the lows we saw in 2012 and early 2013, they are still low.  This provides a ripe opportunity for homeowners to refinance their homes.  A recent article from The Daily Ticker, by Aaron Task, highlights some important facts from Fannie Mae,

But, thus far, refinancing activity remains subdued meaning ‘a lot of consumers are leaving money on the table,’ says Steve Deggendorf, a director in Fannie Mae’s economic and strategic research group.

According to Fannie Mae, between 40%-50% of Americans with a mortgage have never refinanced and have an average mortgage rate around 6%. With roughly 70 million American households holding a mortgage, according to Zillow, that means over 30 million Americans are potentially in a good position to refinance.

According to Fannie Mae’s national housing survey, the top reasons people don’t refinance are:

  •  Payments aren’t reduced enough.

  • Closing costs are too high.

  • Don’t want to extend term of loan.

  • Trust issues with lender.

  • Under water on mortgage or other qualification issues.”

The usual rule of thumb is if your interest rate can be reduced by 0.5% or more, you probably should refinance.  Closing costs do impact the decision, but the interest savings can quickly pay back these costs.  If there is equity in your home, you can roll these costs into the loan so you don’t have to front these costs.  If you plan on being in your home for a while, and do not want to extend the term of your loan, you can take out a shorter duration loan (i.e. a 20 year, 15 year, 10, year, 5 year, etc.).  A reduction in the interest rate could make these shorter duration loans affordable, and maybe even lower than your current payment.  Extending the term of your loan may not be that detrimental either, as most people do not stay in their homes for the full term of their loan.  The internet today provides a wealth of information regarding the legitimacy of certain lenders.  You can also go to your trusted bank or financial institution to see what rates they are offering.  Real estate values have been rising in the recent past.  Many homeowners are not underwater anymore.  If you are, you can see if you can qualify for any government assistance programs such as the HARP program.

For most people, their home is one of their largest assets.  Looking into refinancing your mortgage is just as important as rebalancing your stock portfolio.  Americans should take advantage of these historical interest rates if they can.

About the author

Anand Khemlani

I am a founding member of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), a Certified Fraud Examiner (CFE) and am a licensed Real Estate Broker. I regularly serve as an expert witness involving results of my forensic accounting assignments and damage analyses. My resume is available on Fulcrum's website

Permanent link to this article: http://betweenthenumbers.net/2014/02/have-you-considered-refinancing/

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