Las Vegas Undressed

Should I Refinance?

There is a real incentive to refinance in today’s market. Rates dropped substantially after the Federal Reserve took action to lower rates by purchasing billions of dollars worth of mortgages. Keep in mind that the banks have become extremely cautious on their lending and you need to do your homework. It’s still important to have a trusted advisor who is working in your best interest.

The Fed is doing every thing that they can to shore up the housing market. Lower rates can make housing more affordable and encourage home purchasing and refinancing. This potential upswing in home buying could start to reduce the number of bank owned homes that are in foreclosure. It is imperative that these homes be taken off the market. Bank owned homes sell at a discount to the market and put pressure on the general market value of all homes.

The current refinance market is only available for highly qualified borrowers. The applicant will need to show steady income and solid debt-to-income ratios. Most lenders will only loan up to 80% of the value of your home. This means that you need to have equity in your home. If you fall into this category you should have no problem refinancing your home.

The Problem - Home buyers who are underwater

The large majority of homeowners find themselves in this category. The region of the country, that you live in, is an important factor. Las Vegas has seen a tremendous drop off in home values due to aggressive building and the unrealistic home values of a few years ago.

James Lockhart, Federal Housing Agency Director, has indicated that they may consider waiving the appraisal requirement on refinances. This is an attempt to help those homeowners who find themselves underwater on their home values. This could allow homeowners, that are underwater, to refinance at lower rates. To qualify the homeowner would need to have been current with his mortgage payments. This could motivate people to stay in their homes rather than go through foreclosure. Seems sound to me. Why not reward those people who have been paying their mortgages in a timely fashion.

I understand how some people will complain about this type of action. However, everyone is impacted by foreclosures. Market values will continue to erode unless we remove this continuing threat to home values.

The decision to refinance has many considerations. You may have a high rate and not need to refinance.  If you have been paying on your mortgage for a number of years you may have only a little interest left on the loan. You will be paying mostly principal payments and the interest rate on your loan will not be an issue. Why start a new loan; makes no sense.

The decision to refinance requires you to consider a number of issues.

How long are you planning on staying in the home?

If you are not planning on staying in your home for long; the cost of a refinance may not make sense.

How much lower will your mortgage payments be?

Once this is determined; you can calculate the breakeven point of the transaction. This is the process of determining the costs associated with your loan and advantages of a lower payment.

What is the cost of the new loan?

There are always fees involved. A no-fee loan will typically have a higher interest rate than a loan with upfront fees. A higher rate is a cost that needs to be considered. The lender quotes a higher rate, on a no-fee loan, in order to pay the loan facilitator. Nothing is free.

How much equity do you have in your home?

Do you plan on doing a cash-out refinance?

Do you want to change the term of your loan?

Let’s say you want to change from a 30 year mortgage to a 15 year mortgage, what do you need to know? If your rate is currently low, the cost of a new loan may not make sense. You can just self-amortize your current loan so that it is paid off in 15 years. Simple, and there is no cost to you. The only exception would be if you wanted to do a cash-out refinance or if your rate was high enough that a change in rate would be helpful.

I hope you find this information to be useful, as always, you can call me or send an email if you need information specific to your needs.

HAPPY HOLIDAYS,

MARK CLAWSON

702-351-7912

markvclawson@gmail.com