Time to Refinance?

Mark Sass and his wife decided to refinance the mortgage on their Cincinnati, Ohio, home on Friday, just days before the Federal Reserve pledged to keep rates near their historic lows during the first half of 2012 .

“I knew that the statement by the Fed would come out and rates dropped to historically low levels, and it seemed like an appropriate time. I had not even thought of until now, “says Sass, which has its own marketing research company.

Their original mortgage has an amortization period of 20 years – at a rate of 4.875 percent – with 12 years remaining. They are run on a 10-year mortgage with a rate of 3.5 percent. “I was able to hit a couple of years off the term with a very modest increase in the monthly payment,” says Sass. “It seemed obvious to me.”

Sass and his wife are both 55 years, retirement is on the horizon. “The ability to look 10 years and I know that – unless things change – we will not have a mortgage when we retire like a smart decision,” Sass said, adding all the savings on interests by reducing its duration will be in the neighborhood of $ 20 000.

Sass is one of the many jumps on the train to roll in the wake of the current financial crisis. Mortgage applications rose 21.7 percent for the week ending Aug.5, according to the Mortgage Bankers Association index of composite market. The peak was largely attributable to an increase of 30.4 percent in the group’s refinancing index.

“In a few years, these rates will be a memory that people talk about at cocktail parties. Just like when our parents talked about how low interest rates were when they bought their homes, “said Dan Nigro, director Warfield Consultants in Montclair, New Jersey. “These are the kind of levels that people should lock in the long term and it is certainly what the government has in mind.”

But the question remains: with the average rate on a 30-year mortgage fixed rate hovering just below 4.5 percent – the lowest level since 2011 according to LendingTree.com – consumers should switch to refinance or purchase a new home? Or should they wait for a new background?

It is now time to act, said Alex Stenback, who writes the blog “Behind the Mortgage” and is a mortgage banker with Residential Mortgage Group, a division of Alerus Financial. “Do not be lulled into a sense complacency about what the Fed says about interest rates. They can move up, and this window may close much more quickly than people imagine, “he warns.

Greg McBride, senior financial analyst at Bankrate.com, agrees. Since downgrading by Standard & Poor’s credit rating in the U.S. from AAA to AA on Aug.5, Treasury yields have fallen. “But mortgage rates are down at the same pace,” says McBride.

Mortgage rates tend to reflect long-term U.S. Treasury rates, which declined in recent weeks. The benchmark 10-year Treasury bonds hovered around 2.12 percent on Wednesday night and auctioned a record yield of 2.14 percent on the day.

If you are convinced now is a good time to refinance your existing mortgage, or buying a new home, here are some ways that traditional councils are playing in today’s market:

Shop Around for your lender

Cast a wide net to search for a lender. Do your research and find alternatives. Check with your local bank to see if you qualify for membership rather than getting lured by large institutions from advertising low rates. The Internet offers a wealth of sites designed to help you find the best lender and the rate for you. Section Bankrate.com ‘s refinance is a great place to start.

“You want to apply, ideally with two to three different lenders on the same day. Prices change all the time and want to facilitate the comparison of apples to apples. If you apply the same day, when you look at the estimates in good faith that you can make a good comparison of not only the rate but also the costs to be charged, “said McBride.

Sometimes you need to play hard. Ken McDonnell, director of the American Council Education Savings with Employee Benefit Research Institute, refinanced his mortgage last week. After researching online, he contacted a number of lenders in their area and approached the holder of the mortgage with the best offer he has found. “I contacted Bank of America, which was my banker mortgage for 13 years, and said the rate I get from Aurora Financial – by 3.6 percent and $ 3,000 in closing costs – and asked could they match or do better and they did not, “he said.

By switching lenders, McDonnell has reduced its rate from 4.5 percent to 3.6 percent, which saves $ 291 on his monthly mortgage payments.

Do your research on the costs

Are the costs of refinancing justify the monthly payment reduced? The type of state is an owner of an inch to refinance if they can save a percentage point of their rates.

Bob Davis, executive vice president of the American Bankers Association, warns against the application of broad-coverage, one-percent rule. Consumers need to consider the individual costs of changing over to change lenders, annual savings on the lower rate, how long you’ll probably stay in the house, the change in a tax deduction of interest rates, the title insurance, the cost of waiving escrow and other charges.

“The cost of these variables may be different … there is a dead there. It can take three years to recover your out-of-pocket expenses. If you plan to stay in your home for seven years, that’s a good thing to do, but if you are only staying at home two years it will cost you more to refinance, “he said.

For McDonnell, the cost of changing lenders were minimal. Two thousand dollars of the $ 3,000 in costs were rolled into the mortgage, and after the closure of its escrow account with BofA, it received a $ 1,700 refund. “It will be a very small amount comes out of my pocket,” he said.

In the unwritten rules of refinancing your mortgage payment monthly savings must be equal to your closing costs within 12 to 18 months. If McDonnell, it will break even in 11 months.

Request a copy of your credit report

While there may be an incredible incentive to refinance because of low interest rates, be sure your credit history is in order before approaching a lender.

To lock the lowest rates, consumers will need a FICO score of less than 760 even be a competitor to refinance, said Nigro. “These regulations are very tight underwriting credit and when you combine that with the fact that 25 percent of Americans have loans to value that exceeds 125 percent of the value of their home, this means that a lot of people are eligible to refinance, but less than 20 percent of all those who have the incentive rates can refinance because their credit score and / or equity they have in their home. ”

Everyone is entitled to a free annual credit report from all three credit agencies at the national level: Experian, Equifax and TransUnion. Log on to annualcreditreport.com for your quarterly update.

You never know, you might be pleasantly surprised by your credit score, says Sass. “Our two children are out of college, we have no credit card debt, so I knew the score (credit) would be high. It makes life much easier and there are far fewer questions to answer. “

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