When people start thinking about refinancing, they often have differing reasons as to why they want to refinance their mortgages.  Some people want to refinance so they can reduce their monthly mortgage payments and others want to go from a fixed-rate mortgage to an ARM (adjustable rate mortgage).   Regardless of your reasons for refinancing, you need to know 1) what happens when you refinance and 2) if you should refinance your mortgage.

What happens when you refinance your mortgage?
Simply put, refinancing occurs when a home owner obtains a new mortgage loan for his or her home.  The new loan is used to pay off all or part of the home owner’s old mortgage.  Most people hope to secure new home loans so that can lock in a reduced interest rate.  This way, their monthly mortgage payments are lower and they save some money.  People may also refinance so they can have a shorter or longer amount of time to repay their loans.  When you refinance your mortgage, the balance that you owe on your home will remain the same.   However, you may receive benefits like a reduced interest rate, better repayment terms or the ability to use your equity to make big purchases instead of incurring debt on your credit cards. 

Should You Refinance Your Mortgage?
Now that you know what happens after you refinance your mortgage and the benefits involved, you need to know if you should refinance.  Truthfully, the answer to this question will depend upon your financial goals, the economy, current interest rates and also how long you have resided in your home. 

Deciding whether or not you should refinance isn’t always easy and it will take a little bit of investigation on your part.  Thankfully, there are several online tools that will lead you in the right direction, like the Free Refinance Advisor offered by Catalyst Direct Funding.   This calculator is quick, easy and the more questions you answer – the more accurate your results will be.  Using a calculator like this will help you get a sense of where your break-even point is and if refinancing is a viable option for you. 

One of the main reasons that people choose to refinance mortgages is so they can take advantage of lower interest rates.  However, interest rates fluctuate daily, so you will have to do a little research.  MSN features average daily interest rates for mortgages on their website, which can help point you in the right direction.

Save Time, Work with a CMPS 
Sometimes, you may feel like you need further guidance.  If you are currently in this position, it is always a good idea to meet with a financial professional that can help, like a Certified Mortgage Planning Specialist (CMPS).  A CMPS, like the San Diego professionals at Catalyst Direct Funding, can review your individual situation, conduct an evaluation and provide you with the refinancing tips you need to make financially sound decisions.

If you would like to speak with one of our San Diego refinancing professionals, do not hesitate to contact us today!

The answer is that it all depends on your situation.  I know everyone has heard the saying that you should refinance when rates are 1% lower.  That isn’t always true, sometimes it is more and sometimes it is less.  The way to figure it out is by dividing the costs of the loan by the amount of monthly savings to see how long it will take to recover your money.  If you plan on staying in the home and/or keeping the loan for at least that long then it makes sense. 

If you have an ARM (adjustable rate mortgage) then you need to decide how long you are going to stay in the home and/or keep the loan.  If you are unsure then you may want to think heavily about refinancing since rates are at historic lows.  There is no sense on risking it.  Look how many people are in trouble right now because they took out an ARM.  The article below has some good advice for you too.

http://money.cnn.com/2009/10/20/real_estate/refinance_adjustable_mortgage.moneymag/index.htm?section=money_realestate

Is your ARM (Adjustable Rate Mortgage) about to adjust? My friend’s just did and her payment dropped $745/month.

An adjustable loan may not be such a bad thing after all! As a mortgage advisor, I get calls from people all the time who are terrified that their current home mortgage is about to adjust, and when I say, “That may not be such a bad thing” I often hear silence… Followed by, “What do you mean?” Or, I don’t want to take that chance. Fear of the unknown combined with the media storm of bad news about evil adjustable loans, etc and I can certainly understand why.

Now, this isn’t for everyone, but I say have your Mortgage Advisor look at the terms of your existing Note, and depending on when your loan is scheduled to adjust, and the parameters around how it adjusts, and what index it’s tied to… Letting your loan adjust just may be the best option for the short term.

Here is a great example: A friend of mine came to me earlier in the year asking about refinancing, and based on the current value of their home, the loan to value was too high. Long story short… Their submission for a Loan Modification was denied, so I suggested calling their current lender to see if they are participating in the ” Making Home Affordable” program, also know as HARP, and they were told they didn’t qualify for various reasons (each time they called they were given a different story). They have toiled over getting out of this adjustable loan…

Last week she came to my office and said, “You’ll never believe what I got in the mail…”  I thought they had been approved for the HARP program, but no – they were notified that their loan was adjusting from 6.250% DOWN to 4.250%!

How is this possible you ask; her loan is tied to the LIBOR and this particular index was at 5.271 five years ago when they purchased. Today that index is at 1.2693. Combine that index with the other terms of their loan and voila… Rate is dropping 2.00% and their payment is dropping $745.34/month. Their loan will not adjust for another 12 months, which will allow them some time to save the $745/month (just shy of $9,000 in one year), and who knows where values will be in October 2010…

So, pull out that mortgage note and read it! If you don’t understand it have a reputable Mortgage Advisor read it for you. Lot’s of folks think they have no options at all and it could be that doing nothing is exactly what you should do!  – Jana M Lane