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Refinance...
| Is it time to refinance your home loan? If so, contact us today. There are many benefits to refinancing. Maybe you are interested in locking in a low fixed rate, for a long period. Perhaps you would like to use some of the equity in your home and take cash out. You can even use the money towards home improvement projects or to pay off high interest debt. Whatever your reason is, contact us today to explore all of your options. |
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| • Refinance • Purchase Real Estate • Lower your bills • consolidate debt • Get cash out • Credit improvement • Expand your business |
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Is Now the Right Time To Refinance?
Even if your loan isn't going to reset in the near future, there are good
reasons not to wait. Sinking home values eat into your equity, making it
harder to get a new loan.
Rates on 2 million mortgages are scheduled to rise by the end of 2008. If
yours is one of them, consider refinancing now -- if you can.
Falling home values are eroding people's equity rapidly enough that some
who can refinance today might not be able to do so in a year, notes
mortgage expert Dick Lepre. Even those who have plenty of equity now
may face more limited options and higher costs in a few months.
That's because much of the refinance math lenders do depends on how
much equity you have in your home:
* If your mortgage and other home loans equal 80% or less of your
home's worth, you'll typically have the most choices and be offered the
best rates, contingent on your credit scores.
* As your equity shrinks, though, rates tend to get higher and terms get
stricter, said Lepre, a California loan officer who writes a weekly
newsletter on the mortgage business. Every time you slip over an equity
benchmark -- 85%, 90% and 95% -- rates tick up and your options
decrease.
* Once you owe more on your house than it's worth, your alternatives
pretty much decline to none, at least in today's mortgage market. Lenders
who were once eager to make 100% or more loan-to-value mortgages
have either gone out of business or turned away from these high-risk loans.
Risk is in waiting, not acting
What a difference a few months makes. In the recent past, the only folks
who had to worry about not having enough equity to refinance were those
who had already gobbled it up with home-equity borrowing. Even that
was a temporary situation, as ever-rising home values continued to supply
more equity.
Now that home prices are dropping in many areas, the easy equity gains
have turned into equity erosion. Someone with a $200,000 mortgage
would have an 80% loan-to-value on a home worth $250,000, but if that
home drops 10% in value, to $225,000, the same loan now represents
89% of the home's worth.
Another glitch: Appraisers are getting more conservative, in response to
pressure from lenders. If an appraiser decides your home is worth
$220,000 instead of $225,000, you've risen above the 90% loan-to-value
mark and will find your refinancing options further reduced.
Lepre worries that many folks who should be refinancing are sitting on the
sidelines, hoping for lower rates. That might be a gamble worth taking if
real-estate values are still strong in your area and the supply of unsold
homes isn't building. If prices have already tumbled or there's more than a
six-month supply of homes on the market, though, he'd opt for refinancing
now.
"The risk they're taking is that rates will be no worse in a year, but their
house will be worth less than it is today," Lepre said.
Shake-out may take a few years
How do we know home values will be less next year? We can't know for
sure, and in some still-strong markets they might still be inching up.
But both Lepre and I have been through real-estate recessions, so we
know things can get pretty bad before they get better. So has
commentator Scott Burns, who noted in "Housing horror could hang
around for years" that home prices in many Texas and California cities
took a decade or more to recover from their respective slumps. Lepre
believes that many homeowners in declining markets might have to wait
five years or more before their homes are again worth what they're worth
today.
That's because foreclosures are almost certain to continue rising. One
quarter of the households whose loans are resetting in the next year or so
are at risk of foreclosure, according to the U.S. Department of Housing
and Urban Development. Banks won't want to hold on to these money-
losing properties, so they're likely to dump them at fire-sale prices --
further depressing values in the affected neighborhoods.
If you're considering whether to refinance:
* Do some math. Try to get a bead on what your house is worth now
by asking at least three real-estate agents for "I need to sell it fast"
estimates. A review of recent home sales in your neighborhood may help
you establish a value and the price trend in your area -- up, plateauing,
dropping, falling like a rock. Divide what you owe by what your house is
worth to determine your loan-to-value ratio. Now do the math again,
assuming home prices drop 10%. If the results make you queasy, you
might want to start shopping for a new loan now.
* Consider fixing the interest rate for at least as long as you'll be in the
house. Signing up for another loan that adjusts before you're ready to
move just puts off the problem to a time when you may have less equity --
and less leverage.
What if you've already waited too long and don't have enough equity to
refinance? If that's your situation, and you're having trouble making the
payments, contact a HUD-approved housing counselor immediately to
discuss your options. Read "Facing foreclosure? 9 options" and "Your
lender doesn't want your house" for alternatives and strategies.
Even if your loan isn't going to reset in the near future, there are good
reasons not to wait. Sinking home values eat into your equity, making it
harder to get a new loan.
Rates on 2 million mortgages are scheduled to rise by the end of 2008. If
yours is one of them, consider refinancing now -- if you can.
Falling home values are eroding people's equity rapidly enough that some
who can refinance today might not be able to do so in a year, notes
mortgage expert Dick Lepre. Even those who have plenty of equity now
may face more limited options and higher costs in a few months.
That's because much of the refinance math lenders do depends on how
much equity you have in your home:
* If your mortgage and other home loans equal 80% or less of your
home's worth, you'll typically have the most choices and be offered the
best rates, contingent on your credit scores.
* As your equity shrinks, though, rates tend to get higher and terms get
stricter, said Lepre, a California loan officer who writes a weekly
newsletter on the mortgage business. Every time you slip over an equity
benchmark -- 85%, 90% and 95% -- rates tick up and your options
decrease.
* Once you owe more on your house than it's worth, your alternatives
pretty much decline to none, at least in today's mortgage market. Lenders
who were once eager to make 100% or more loan-to-value mortgages
have either gone out of business or turned away from these high-risk loans.
Risk is in waiting, not acting
What a difference a few months makes. In the recent past, the only folks
who had to worry about not having enough equity to refinance were those
who had already gobbled it up with home-equity borrowing. Even that
was a temporary situation, as ever-rising home values continued to supply
more equity.
Now that home prices are dropping in many areas, the easy equity gains
have turned into equity erosion. Someone with a $200,000 mortgage
would have an 80% loan-to-value on a home worth $250,000, but if that
home drops 10% in value, to $225,000, the same loan now represents
89% of the home's worth.
Another glitch: Appraisers are getting more conservative, in response to
pressure from lenders. If an appraiser decides your home is worth
$220,000 instead of $225,000, you've risen above the 90% loan-to-value
mark and will find your refinancing options further reduced.
Lepre worries that many folks who should be refinancing are sitting on the
sidelines, hoping for lower rates. That might be a gamble worth taking if
real-estate values are still strong in your area and the supply of unsold
homes isn't building. If prices have already tumbled or there's more than a
six-month supply of homes on the market, though, he'd opt for refinancing
now.
"The risk they're taking is that rates will be no worse in a year, but their
house will be worth less than it is today," Lepre said.
Shake-out may take a few years
How do we know home values will be less next year? We can't know for
sure, and in some still-strong markets they might still be inching up.
But both Lepre and I have been through real-estate recessions, so we
know things can get pretty bad before they get better. So has
commentator Scott Burns, who noted in "Housing horror could hang
around for years" that home prices in many Texas and California cities
took a decade or more to recover from their respective slumps. Lepre
believes that many homeowners in declining markets might have to wait
five years or more before their homes are again worth what they're worth
today.
That's because foreclosures are almost certain to continue rising. One
quarter of the households whose loans are resetting in the next year or so
are at risk of foreclosure, according to the U.S. Department of Housing
and Urban Development. Banks won't want to hold on to these money-
losing properties, so they're likely to dump them at fire-sale prices --
further depressing values in the affected neighborhoods.
If you're considering whether to refinance:
* Do some math. Try to get a bead on what your house is worth now
by asking at least three real-estate agents for "I need to sell it fast"
estimates. A review of recent home sales in your neighborhood may help
you establish a value and the price trend in your area -- up, plateauing,
dropping, falling like a rock. Divide what you owe by what your house is
worth to determine your loan-to-value ratio. Now do the math again,
assuming home prices drop 10%. If the results make you queasy, you
might want to start shopping for a new loan now.
* Consider fixing the interest rate for at least as long as you'll be in the
house. Signing up for another loan that adjusts before you're ready to
move just puts off the problem to a time when you may have less equity --
and less leverage.
What if you've already waited too long and don't have enough equity to
refinance? If that's your situation, and you're having trouble making the
payments, contact a HUD-approved housing counselor immediately to
discuss your options. Read "Facing foreclosure? 9 options" and "Your
lender doesn't want your house" for alternatives and strategies.