Troy Langeness, Vice President—Residential Lending
Too often, homeowners refinance in reaction to interest rate levels, assuming that if rates are low or about to rise, it’s a good time. But, it may not be the best time.
For that, the determining question should be: Is now the right time for your circumstances? Because when it comes to refinancing, it’s not really about the current level of interest rates as much as it is about what you personally will accomplish by pursuing one.
What a Refinancing Can Do for You
Refinancing has a cost—generally adding up to several thousand dollars. This is why you should work with a lender to make sure going through the process will be worth the expense.
The basic rules of thumb for determining that include your intention to live in your home for at least four to five years and, when the numbers are crunched, that the refinancing will either literally pay for itself within 18 months or help you achieve some other financial goal.
These goals could include:
- Shortening the pay-off period for your home so that you will own it free and clear before you retire. This is usually accomplished by replacing a 30-year mortgage with a 20-, 15- or 10-year mortgage.
- Lowering your monthly payment by refinancing your current home loan balance at a lower interest rate, enabling you to put more money into savings or take on other expenses.
- Consolidating high-interest debt (such as credit card balances or auto loans) with lower-rate mortgage debt to make monthly payments more affordable and tax deductible.
- Accessing the home equity you’ve built up over the years to purchase another asset that you might not be able to finance otherwise due to circumstances beyond your control.
- Eliminating private mortgage insurance (PMI), which is mandatory on loan to values greater than 80 percent.
- Locking in a fixed rate and retiring an adjustable-rate mortgage (ARM).
Online refinance comparison calculators can help you estimate the benefits of refinancing. But, talking to a lender who will listen, check your numbers and even customize the loan structure to make sure refinancing makes sense for you is highly recommended before you apply.
Once you determine that refinancing is right for you, be aware that the approval process for home-based lending has changed dramatically since 2009. Nearly all the changes were made to improve consumer protection. That said, refinancing takes more documentation than it used to.
Even when these loans are handled online, they now require a deeper dive into your credit history. Borrowers are required by the government-sponsored enterprises, including Fannie Mae and Freddie Mac, to do more explaining about their assets, sources of income and any recent money transfers that result in large deposits. These, in turn, need to be documented to establish their paper trails.
Old Second continues to leverage technology to ensure your refinancing is as efficient as possible. We accept applications online, face to face or by phone and offer the option of electronic signatures on many of the documents.
If you think a refinancing would help you accomplish your financial goals, call us. We’re always happy to talk it through and create the right loan structure for your situation.