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The Best of Times; the Worst of Times - The Right Time to Refinance

by Kristi  Shibata
Mortgage Directory Columnist

The housing market has been a roller coaster taking homeowners on big dips and upside down rides. Many homeowners facing interest rate increases and declining values have no choice but to look at refinancing options in order to save their home.

The Mortgage Bankers Association reported a 92% increase in refinancing since the beginning of November 2007. A survey also shows that more than half of U.S. lenders have tightened their requirements for potential borrowers and four in five banks have implemented stricter underwriting guidelines. So with more refinance demand and tighter mortgage loan supplies, how do you know if you are a strong candidate to refinance?

When to Consider refinancing…

  • If you can lock in a lower interest rate and plan to keep the property long enough to recoup refinancing costs.
  • If your credit score has increased, making you a candidate for a better rate than the one on your current loan.
  • If your current loan is an ARM and you expect a substantial rate increase.
  • You can exploit a rule change. This includes increasing the maximum limit on conforming mortgage loans to over $700,000 in the most expensive real estate markets. Previously, conforming loans in all markets were capped at $417,000. The Federal Housing Administration has also set new limits increasing their lending amount to 125% of a county's median home prices.

Difficult Times to Refinance…

  • Short-term stay:
    If you plan to move in a year or two, the closing costs on a new mortgage may not be sufficiently offset by the lower monthly payments.
  • Poor Credit Score:
    If you have a so-so credit score, may not qualify for better terms. Lenders are making it tougher rather than easier for marginal borrowers to get approval.
  • Low home equity or a home in a declining market:
    If you have less than 10% equity in your home, it may be difficult to get approved for a new mortgage, especially if your neighborhood is one that lenders have identified as being in a soft real estate market. Lenders routinely drop 5% to 10% from the loan amounts they will approve if the home is in an area of declining prices.
If refinancing looks like a good idea, shop with several lenders and work with one you like. If refinancing doesn't look feasible, and you think you might be in trouble with your mortgage, contact your current lender before potential trouble becomes a real problem.


About the Author
Kristi Shibata is a public relations and communication specialist and regular Mortgage Directory columnist. She graduated from University of California, San Diego, with a BA in Communications.

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