Should We Refinance?

Updated on February 03, 2010
N.B. asks from Malta, IL
14 answers

I wondered if there are any mortgage savvy people out there that might have an opinion on what would be the best decision.

We have made not great decisions in the past with our townhouse. We refinanced into an ARM at 6%, I think it will adjust in 2011. We chose at the time to do that because we did not want to stay there and thought we could move within 5 years and consolidated some debt. Obviously with the current housing market, it is not going to happen.

I am looking at the rates being really low and wondered if we should:

1) Refinance at all
2) Refinance to a 30 year fixed (even though we still HOPE to get out of this home when ever it is possible)
3) Refinance to another ARM or Interest only to save us money that could help us in other areas of debt being we hope we will still be able to move in a few years.

We have gained no equity in this home because of the decision we made on refinancing and with hope to move to a home I am not sure if we refinanced to a fixed if we would even see any equity in 5 years anyway.

Any ideas?

Thanks so much!!

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M.M.

answers from Chicago on

I have a great mortgage person who will go out of her way to help you. Please call Tammy Maranto with Guaranteed Rate. Her phone number is work: ###-###-#### , call ###-###-#### or email is [email protected]____.com.

M.

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D.K.

answers from Chicago on

I am not a mortgage expert. When I purchased my first condo I made a lot of mistakes because I used a mortgage broker who did not have my best interests in mind (despite being a very nice and personable man). I thought that I had done my research as well, the transaction that I was entering into seemed really common. I bought with an ARM and a piggy back loan and then refinanced into another arm a year later. Needless to say I lost money and I beat myself up over it for a while. Don't beat yourself up, a lot of people make mistakes when it comes to mortgages, especially if they think that they are working with a professional that is supposed to help them and they are really only helping themselves.

I was lucky to sell my condo before the mortgage crisis and before my arm was up and we now have a house with a 30 year fixed mortgage and with over 20 percent in equity. I know that I am lucky to be in this situation. I used another mortgage broker for the transaction when I purchased my home and he was excellent. Here is a link to the company's website: http://www.pillarhomeloan.com/Default.aspx I have called him numerous times since I bought my home just to ask him for advice including whether we should refinance when the rates were about 1 percent lower than our current rate. Other times about random other financial things, like the IL 529 plan. I have always gotten good advice from him. When I asked him about refinancing he said that the general suggestion you often hear is to refinance if rates are 1 percent lower than your current rate, but he did the math for me and it turns out I would have lost money again. He basically said "I can refinance this for you, but it would be good for me, not you."

The problem that I think you are going to have is that you stated that you have gained no equity in your home. From what I have heard, you are going to have a really hard time refinancing at all if you don't have equity in your home or the cash to put down for a downpayment at the time of the refinance. My advice would be to buckledown and start saving as much as you can now so that you can hopefully refinance before or soon after your ARM is up. (Hopefully by then home values will have increased some, which should help you as well.)

I don't agree with the post that said that you should foreclose on your home, I think you should work to get into a better situation, but obviously that is up to you. Just note that along with losing your home and not having anywhere to live, you will be ruining your credit and won't be able to get another mortgage for a long time. When you do get your next mortgage, you will be required to pay a large downpayment and you will also have a high interest rate. Also, you will owe a lot in taxes. When the bank sells your property for a loss, the rest is "forgiven" but the IRS considers that amount income and you owe taxes on it.

I don't know much about the program, but perhaps you could qualify for the Making Home Affordable program. That may help lower your rates for a while while you save up and the mortgage crisis moves on. Also, you should talk to the bank that owns your mortgage you can start now by explaining your concerns. I have heard that it takes time, but usually if you are persistant, they will work with you to change your mortgage. It is much better for them to do that then to risk foreclosing on your home.

Anyway, that is probably a lot more than you were looking for.

Good Luck,
D.

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S.B.

answers from Chicago on

I know a great mortgage person who would assess your situation and be honest with you about what would be best for you to do or not do. Respond back if you want her contact information.

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L.B.

answers from Chicago on

From our experience, your mortgage payments might double when your arm expires. It's ridiculous how much they can increase your payment, but in the fine print of the contract you signed, it's right there. My daughter was in the mortgage business for 5 years, and she says NEVER go for an arm. Always try for a fixed rate, at least you know where you stand. Good luck

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L.M.

answers from New York on

Yes, you should consider refinancing.

Since I don't have a lot of details, I give you some general information that I've picked up over the years.

Generally if your rate will drop by more than 1% you should consider refinancing.

Fixed is the best way to go, especially since interest rates are low. You always hear about 15 year and 30 year mortgages. Most of us can't afford the payments for a 15 year, so we do with the 30. 20 year mortgages are becomming more popular and over time, even a few years can save you lots.

Most ARM's are only good for a small percentage of people. I think mortgage lenders try to push them because to the best of my knowledge they're easier to qualify for.

Absolutly under NO circumstances what so ever go for an interest only.

Other things to consider...

Do you know your credit score? This can make a difference in the interest rate you qualify for. If you have good credit, you can have the upper hand. If your score is low, and you have high credit card debt, make a huge effort to pay off as much as possible before you start the process.

PMI insurance. What's the percentage of equity you have in your home? Chances are it was less than 20% when you purchased the home, but may have dropped by now. Lenders do not automatically stop the PMI when you reach over 20%.

Regarding taking out additional funds for debt, I don't know your financial situation, so I can't offer any advise. Do you have a tax professional that does your taxes (not an HR Block person, but a CPA)? He or she can help you with this.

Ignorance is not bliss. Do some homework. Check out the money sections of MSN.com or AOL.com, there are many calculators you can use to help you make informed decissions.

Assume your mortgage broker is trying to screw you (excuse the language). It's not true in most cases, but the bottom line for them is they want to earn as much money as the can off of you.

Good luck.

Good luck.

J.M.

answers from Chicago on

Wow - alot of great ideas here. I've been in the mortgage industry for almost 12 years now and this past year there have been more changes then in the previous ten years. It is very confusing out there right now. The most important aspect is to sit and talk with someone. I love being able to communicate via blogs and emails but ultimately I always get a better sense from someone and they for me when we speak (by phone or in person)
You do have alot of variables going on with your situation and first and foremost STOP beating yourself up about the past refinance. We need to get you past that and look towards what can be done either by you or the lenders available. YOu did what was best for you at the time.
There is a need here to go over your mortgage statement, your credit history, your available value (if you qualify you can be underwater and still do a loan), the type of homeowners association you have, your income, your debt etc.
A refi is always best
A modification as second best
A short sale as third
A foreclosure as a last last last resort
I say this with future lending needs in mind and the scrutiny of the recovery period desired by lenders (not just homes, but cars, credit cards, checking accounts and car insurance to name a few)
If you desire I will talk with you and your husband. This is what I do best
J. Matthews
Home Loan Specialist
###-###-####

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C.T.

answers from Denver on

Hi NB - I was a mortgage lender for a lot of years and I would recommend calling a reputable mortgage lender for help because there are too many variables in your situation to give you targeted advice. Call your realtor or ask a friend for a name, dont just call up anyone at Bank of America, etc.

The trend for next year is that arm rates especially those attached to prime are heading up next year. It's a great time to get into a 30 yr mortgage but the lending rules have really tightened since the banking crisis. The lender will be able to recommend programs available to you given the amount of equity you have in the home along with your credit history etc.

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E.H.

answers from Toledo on

If you have decided that you want to sell the home when you are able, refinancing may cost you more in closing costs than you would save. I would check mortgage calculators online to try and estimate what you would save by refinancing at current rates vs. what the closing costs would be on the refi.

An option you may consider is to approach your mortgage servicer and request a loan modification through the federal HAMP program. I do NOT suggest paying anyone to help you through the process, there are numerous companies running scams of this sort. Instead, you can receive help through a non- profit organization such as ESOP or Neighborhood Housing Services. It is not neccessary however to go through any agency at all, you can request modification on your own by calling your lender or servicer directly.

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J.

answers from Chicago on

I would talk to a reputable mortgage company. Generally speaking, refinancing is worthwhile if you can lower your rate by about one percentage point (which you should be able to right now). Personally, I do not like adjustable rate mortgages (or interest only) because you just don't know what is going to happen.

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H.H.

answers from Chicago on

Hi there-

I really don't have solid answers for you, but I have referred several of my family members to a good friend of mine who does refinancing/reverse mortgages, etc...He will tell you upfront what your options are and if he can help you. If he cannot help you, he will find someone who could. If you would like to speak with him, please give him a call: Chuck Jimenez ###-###-####. He has been doing mortgages/refinancing for about 6 yrs now. Good luck!

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G.H.

answers from Chicago on

First find out if you have a Fannie Mae or Freddie Mac mortgage. If you have either of these then the best thing to do is call your current mortgage lender & ask for a modification. If you dont have either type of mortgage then unless you have a lot of equity in your home it may be very hard to refinance. If this is the case then find the best lender that doesnt charge a lot of fees & have an appraisal done to see where you stand. That way you will know how much you are short so you can save up the money to bring to closing or figure out whats the best thing to do. I agree that you need to do this process sooner than later because rates will rise in the near future. I am in the middle of a refinance too. We took out a 7yr arm to wait til my dghtr graduated from high school & we allowed ourselves 3 yrs to build or find a home, well the yr she graduated is when home prices fell drastically. But I just had an apprsl done & it came back $40,000 higher than I estimated. I hope this info helps, let me know if you have any more questions.

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C.H.

answers from Chicago on

before refinancing, make sure your credit report is in good order. You can order you report for free by going to: www.annualcreditreport.com One little reporting mistake can cost you a lot of money, so it's best to see what creditors are reporting on you so that you can see if you can fix it before refinancing.

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J.K.

answers from Chicago on

You have received a lot of good advice re: refinancing, so I won't repeat that. But one thing you didn't say is whether or not you have any equity in the house. If you bought the house with little money down, chances are good that you are underwater now. (I'm sorry to say.) If you owe more than the property is currently worth, you won't be able to refi the loan at the same amount, and I don't think you want to pay more money into this property. Sometimes, letting the property go back to the bank makes the most sense financially. There has been a lot written about this. You can try www.youwalkaway.com for a place to start. You could consider finding a nice rental property to rent and then letting your townhouse go. This might make your finances a lot less stressful, but there are important consequences, and you should talk to a lawyer. Your credit score will take a hit, but if you won't be buying another property for a few years that might not matter. I don't know that this is the right answer, but sometimes it is good to think "outside the box" and just know that this is an option. Talk to a lawyer first and make sure that the bank can't come after you for anything above and beyond the loan. Taking it a step farther, there are lots of stories about people who default (stop paying their mortgage) and the bank doesn't come after them for almost 2 years. Depends on who your mortgage is with, but it is happening every day. Good luck.

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M.C.

answers from Washington DC on

Yes I would try to refinance. Sooner rather than later. If you have equity in your home, and refi a straight loan, without getting any cash out, the refi won't affect the current amount of equity.

Go to www.realtor.com. There you can put in your street address, and get a general idea of what the houses in your area are going for. Then contact your current lender,and see what options they are willing to offer. After talking to them, contact one - two additional lenders to see what they are offering.

Personally, I would avoid another ARM loan. Fixed rates are amazing right now, but I don't know your whole situation.

I would ABSOLUTELY NOT refi or modify the loan to an interest only loan!!! I can't stress that enough. These types of loans look great, you save a lot of money monthly, but they are a trap!! As soon as you sign the paperwork, your upside down in your mortgage! Why, becuase you never pay towards the principle amount, which means that you NEVER earn equity.

Mind you, I am not a banker, mortgage person, etc. I'm just a person who has bought several homes, as well as seen the mistakes that friends and family have made.

Good luck.
M.

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