Is now the time to refinance your home?

February 11, 2009 7:08:37 PM PST
Despite the bank bailouts, credit remains hard to come by. For those homeowners who do get approval to refinance their home loans, it may not be the right move.SIGN-UP: Get breaking news sent to you

Interest in refinancing is at a five-year high, but refinancing isn't for everybody.

Interest in refinancing is at a five year high. But refinancing isn't for everybody. Here are the factors you should consider before refinancing.

Mark Hodgson bought a home in San Francisco in 2001. He recently refinanced at five percent, one full percent below his previous interest rate.

"I'm going to save $100,000 in total. It's amazing," said Hodgson.

That potential for big savings has lead to a flurry of activity for lenders like Wells Fargo.

"We're seeing application volumes that we haven't seen since 2003. The 30-year fix rate loans are right about five percent today. And those are unprecedented numbers," said Wells Fargo Executive Vice President Brad Blackwell.

The Web site www.bankrate.com says the average 30-year conforming mortgage right now is at 5.43 percent.

That's one percent lower than just six months ago.

But those with mortgages between $417,000 and $625,000 500 fall into the conforming mortgage category. Wells Fargo says those homeowners can expect to pay about a quarter percent more.

Tom Davidofff is with the Fisher Center for Real Estate at the Haas School of Business at UC Berkeley. He predicts Fannie Mae and Freddy Mac will continue to subsidize mortgages and keep rates low.

"I think we will see low rates for at least the next couple, three, four months. It may be longer," said Professor Tom Davidoff.

But credit remains tight and qualifying for any of these loans can be difficult.

To qualify, your mortgage must not be more than 80 percent of what your home is worth. Many are finding out that with home values plummeting, that can be difficult.

That's what happened to Dylan Boldt of San Leandro. The value on his home dropped in 18 months from $505,000 down to $320,000.

The bank denied his application to refinance.

"I'm running out of savings. If I don't refinance soon, I'm going to end up behind in my payments. I won't be able to make it anymore," said Boldt.

"You owe more than your home is worth, or if you owe almost as much as your home is worth, this product is not going to be for you. It's for people who are comfortable in their home and their mortgage is not particularly close to the value of the home," said Davidoff.

But even with sufficient equity, refinancing may not save you enough money to justify the cost.

To find out, add up all your points and fees to figure out the total cost of the refinance. Divide that by the amount you save each month to figure out your payback period.

"If you're going to be in your property for that length of time, chances are good you should make the decision to refinance," said Blackwell.

If you qualify, the savings can be tremendous.

"It's just something I never expected to be able to do at this time given the economy," said Hodgson.

But for some, rejection can lead to desperation.

"There is definite fear I'm going to lose my home," said Boldt

If you find yourself in Dylan's situation, don't wait to ask for help. Contact a HUD certified housing counselor immediately.

For those of you with home values in the jumbo loan category above $625,000, rates are around seven percent and may be too high to make refinancing an option.

Related Link:

HUD Approved Housing Counseling Agencies

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