A few days back I received an email from one of my readers who asks if she should refinance her mortgage right now in June 2009. It is really not a simple question to answer. Besides the current interest rates, there are other things that needs to be considered. I have written a many posts that cover the things that needs to be considered before refinancing. Just go to the Real Estate category to browse all the posts about refinancing.
Just because you see a lot of people are currently going for mortgage refinancing, it does not mean that it is also a right option for you. Refinancing is a big decision and there are instances faced by other people that may not apply to you although it seems to you like a tempting good idea to get a refinancing loan.
Read below and see if you can relate to the four people in this story:
Allen Bower:
Allen’s home equity value has dropped. He is thinking hard about the status of his home’s value. He thinks that property value across the nation has gone down so in most cases, Allen thinks, it does not make much sense to apply for a mortgage refinancing.
Although he does not think that refinancing is a good idea, he did a little research to see whether he was right. He found a chance to refinance up to 75% of his property’s new value. Now he is checking to see if his original mortgage is actually less than that. Apparently he finds out that it was not less, it was higher. In his case, when he still decides to go for a refinancing, chances are that he won’t be able to pay the the existing loan with his new terms. For Allen, mortgage refinancing would not really be helping him at all.
Bill White:
Bill has an existing mortgage that he has agreed to pay for 30 years. He’s been paying for the last 20 years now and he has only got 10 more years to pay off his mortgage. If he refinance now, he would be prolonging the 10 more years to 30-years again and he will be back where he started 20 years ago.
Bill thinks that if he takes a new 30-year refinance loan, it would mean that he would be reaping more interest. Additionally, Bill will have to pay the obvious costs of closing up a new loan. The minute he does his numbers, he will find out that he would actually be paing far more in total if he refinances.
Charles Newman:
Charles needs cash now and he is thinking of getting a mortgage refinance. But the has only a few years left on his existing loan. Although he desperately needs the cash, he should think of other cash flow alternatives and just bear out the existing loan and be done with it. By paying a new loan, he will be paying a lot more money in the end.
David Schlumberger:
David has used enough equity on his first loan. He had taken out a home equity loan of 90% of his home value. He is thinking to get a mortgage refinancing but considering his home equity, it may not be for him right now. When he refinances a 90% or higher loan, he probably needs a loan equal to it or higher. This is now almost a 100% financing option and the rates will be noticeably higher. 100% loans are pretty much hard to find these days anyway. The lowdown is this: refinancing less than 90% will yield him bad rates, while over 90% will give him higher rates or none at all. Either way is shaky ground, so mortgage refinancing might not be the best option for Mr. D.
If you are under certain circumstances, mortgages refinancing is a good option. But if your situation is similar to the four person above, it is better to reconsider and re-assess and find other ways to get money or solve your mortgage problems.
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