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Three things to consider when refinancing your mortgage

Lured by low mortgage rates, many homeowners have been rushing to refinance. Interest is gaining for good reason: Eligible borrowers can lock in rates that haven't been this attractive in decades. With interest rates hovering around 5% for conforming loan amounts, homeowners should begin to seriously consider refinancing into a new fixed-rate mortgage, especially if they currently have an adjustable-rate mortgage.

The national average rate on a 30-year fixed-rate conforming mortgage is the lowest in at least 37 years, according to Freddie Mac. Given the volatility in the mortgage market so far this year homeowners should be proactive. It's possible that rates will be low for a while, but in this turbulent economy, it's not best to gamble that tomorrow will bring a better deal. Don't sit back and say I'm going to wait for something to happen and for rates to go even lower. If you're able to refinance into a mortgage that will be better for your finances, don't pass up the opportunity.

Below are other points to consider:

1. Have an idea of home's value

Prior to starting the refinancing process, call us to get an estimate of what your home could be worth.  If you're "drastically upside down" on your mortgage, meaning that you owe a lot more than your home is now worth, the possibility of refinancing might end right there.

To get a better idea on a home's value, borrowers might ask their mortgage firm if the appraiser it works with could give a ballpark estimate before starting the process.  But that's still just an estimate until an appraiser comes out to your home.

2. Get ready for a thorough screening process

It's not impossible to get a mortgage in today's environment. But lending standards are likely a lot more strict than they were the last time you applied for a mortgage, so expect a thorough and frank discussion of your finances.  Lenders are asking would-be borrowers to document income and assets thoroughly. Those who might have a particularly tough time getting a mortgage today are self-employed homeowners who don't have two years of income documentation -- even if they have the income to support the mortgage.

3. Know what you'll be saving

The old rule of thumb was that your rate should drop two percentage points for a refinance to be worth it, but that doesn't always apply anymore.  If you can recoup closing costs of the new mortgage in the first 12 months -- and can save one-half of a percentage point on your interest rate every year thereafter -- it's probably economically justifiable to refinance.

In any case, have a conversation about what rate would make refinancing worthwhile, and be prepared to take action. Borrowers also need to consider how long they want to stay in the property to determine which mortgage makes the most sense for their situation.

Sometimes you could be better off refinancing even if you don't get a better rate.  If you have an adjustable-rate mortgage that resets in a year, but can get a fixed-rate mortgage at the same rate, it's probably a good idea to refinance now if you plan on being in the home for years to come.

If you have any questions, we are here to help!  Please call or email us at the information below:

Elizabeth and James Stein

Elizabeth: Mobile 310-902-4436/email: elizabeth@teamstein.com

James: Mobile 310-991-4260/email: james@teamstein.com