Is it time to refinance your mortgage?  

By Keith Givens

You’ve probably heard it before – a friend or neighbor has refinanced and is enjoying lower monthly mortgage payments.
   Refinancing is essentially paying off your existing mortgage and taking out a new one. Whenever interest rates drop, the appeal of refinancing your mortgage grows. But it’s important to know the real costs -- and potential savings -- before making a move. Experts predict that approximately 35 percent of all mortgage transactions in this year will be refinances, even if interest rates rise. So, you ask, is now the best time to refinance my mortgage? And is it worth the possible expense? Conventional wisdom used to be that it only made sense to refinance when rates were at least one or two percent lower than your current mortgage rate. Homeowners often see things differently now; Wayne Bradshaw, regional president of Retail Banking for Washington Mutual (WaMu) states, “Many homeowners are currently refinancing and interest rates are not the main driver.” “Homeowners view their mortgage now as a financial instrument and, depending on their financial condition, may seek a cash-out refinance,” Bradshaw said. “They may elect to tap their home’s equity in order to finance home improvements or their child’s college tuition.”
Why are many people refinancing?
    Bradshaw says there are a number of situations in which refinancing can be a good decision for borrowers.
• Paying off high-interest debts is one popular reason why consumers refinance. If your property has plenty of equity, you may be able to pull that money out and use it more wisely. “Some homeowners have a lot of equity in their home, yet they are still making payments on high-interest consumer debt,” explained Bradshaw.
• You may also want to refinance to obtain a lower interest rate on your existing loan. With a high credit score and favorable credit report, you may be able to reduce your interest rate, decrease the size of your monthly mortgage payment, and increase the rate at which you build equity in your home.
• Finally, some homeowners refinance to move out of variable- rate loans and into fixedrate loans, or vice versa, as well as to shorten their mortgage period, or to consolidate first and second mortgages. So how do I decide what to do?
    Ultimately the decision to refinance is dependent on a number of factors, including the length of time you plan to stay in your home and the amount you will pay in upfront fees to refinance. Evaluate your financial situation, calculate your current monthly costs and estimate the total savings associated with refinancing. In the end, you may be better off keeping your existing loan if the cost of refinancing negates the potential savings due to a lower interest rate or shorter term loan.
    Many lenders have “no cost” and “low cost” refinancing packages that minimize or even eliminate a borrower’s out of pocket expenses for refinancing. Bradshaw cautions, “These offers may look attractive, but be sure to scrutinize the term of these refinancing packages. Lenders often compensate by offering a higher interest rate or adding some of the refinancing costs to the new loan amount.”
    “The best way to find out if refinancing is right for you is to talk to a mortgage professional who will help you navigate through all the refinancing information,” Bradshaw said. “As with everything else, every situation is unique. The best advice is personal advice.”
    If you are considering refinancing your home, or would like to learn about the various home lending options available to you, always speak to a lending professional. Bay Area WaMu Financial Centers for example, have experts who can assist with your personal financial needs.