The Age of the Refi Renaissance

Over the weekend I came across this article in The Washington Post, Lower Rates, Coming Resets: An Opening For Refinancing which discusses the onslaught of refinances due to the adjustable rate mortgages that are about to reset.

Here are some of the more salient points in the article. Homeowners with ARMS should pay close attention:

“Thanks to the lowest mortgage interest rates in a year and a half, nearly 60 percent of all new mortgage applications by mid-January were for refinancings, according to data compiled by the Mortgage Bankers Association. Rates this week were 5.69 percent for a 30-year fixed-rate mortgage and 5.21 percent for a 15-year fixed-rate loan, Freddie Mac said.”

“Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association, said “no-cost” refinancings — in which transaction fees are rolled into the interest rate — “are absolutely an option” for people who took out fixed-rate loans in 2006 or 2007 ,when rates were at or above 6.25 percent.”

“borrowers with a 6.5 percent fixed-rate loan might be able to refinance into a 6 percent loan without paying any fees at origination or settlement. The lender would simply add a quarter of a percentage point to a 5.75 percent 30-year conventional loan rate.”

“Assuming a $400,000 existing loan amount, homeowners could save $128 a month in principal and interest — $1,536 over the course of a year — by moving out of a 6.5 percent mortgage into a 30-year loan at 6 percent with no settlement costs.”
However, take caution:

“…in the past nine months, most national lenders have tightened underwriting rules and are now extra-cautious about appraisal accuracy, borrower equity and credit scores, especially in areas where prices have been soft or declining, Lipes said. As a result, owners who bought properties with minimal down payments a few years ago may find their appraised values lower and their equity positions insufficient to qualify for refinancing.

Absent appraisal issues, Lipes said, applicants with solid credit histories, documentable income and a lot of equity can readily refinance into fixed-rate mortgages at 5.63 percent to 5.75 percent, with no points and no cash out.

This is great news! Better than I thought it would be as not too long ago it was rather difficult for homeowners to refinance given the banks’ refusal to work with them on restructuring an ARM. But, I think reality has set in for most banks and they are realizing that foreclosing on the homes isnt a good look because they are stuck holding the note and property taxes on the home. So this is indeed a good time to refinance if you know that your ARM will be resetting to a monthly payment that you can’t afford. Avoiding foreclosure is key to protecting your credit and livelihood in this credit based society. So please, take advantage of hte low rates and secure your future.

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