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Refinance of loan depends on rate

Now may be time to buy better home

Published on Sunday, May 18, 2008

Today on the front page of the Beacon Journal, Home reporter Mary Beth Breckenridge and I start a two-part series on how to buy your first home. It was designed as a primer for people who might find in a period of high housing inventory and low mortgage rates, that it's the right time to buy a home.

But we also strove to give step-by-step information to help the first-time home buyer since the home foreclosure crisis shows that a lot of people bought homes and weren't fully educated.

However, the series also begged another question:

What about those of us who already own homes? Is now a good time to be refinancing mortgages or to upgrade to a new house?

Refinancing to save solely on the interest rate actually isn't as hot right now as you might think. In fact, I had a hard time finding a lender who could connect me with a current homeowner who refinanced purely to save on the rate. Plenty of people are refinancing to roll in other debt or because they're in need of some cash.

But the straight refinancing to save on the rate isn't happening for two reasons, lenders say.

The general rule of thumb
is you should save at least 1 percent and preferably 2 percent on your new rate. But since a lot of people refinanced in 2003 when rates were low, many are finding now they won't save that 1 to 2 percent if they refinance.

You also need to do some math and find out when you will actually break even with the closing costs. If you plan on moving before you break even and start saving money on your loan, then it's not worth refinancing.

A second reason rate refinancing isn't happening in large numbers is that though the Federal Reserve has cut interest rates, those haven't translated directly into lower mortgage rates.

''Even though consumer loans and equity loans are way down, mortgage loans aren't,'' said John Herink, manager of the Akron office of the Buckeye State Credit Union.

Rates aren't lower than they were five years ago and rates have been at similar numbers within the last five years, said Herink.

But if you locked into a rate when they were high or especially if you have an adjustable rate mortgage, now would be the time to refinance, said Jack Sarver, chief executive officer of TeleCommunity Credit Union.

''The faster you can get into a fixed rate, the better you're going to be,'' Sarver said.

Shortening mortgage

If you do refinance, you might want to see if you can shorten your term, said Ann Durr, president and chief operating officer of Valley Savings Bank.

Consider a 15- or 20-year mortgage instead of a 30-year-term, she said.

If you're going to refinance, make sure you do the proper research and work with a reputable creditor. Also, be sure you ask about prepayment penalties and closing fees.

If you're considering refinancing your home to roll in some current debt, such as credit cards or a car loan, into your home mortgage, Jay Seaton, president of Consumer Credit Counseling Service of Northeastern Ohio, said he'd advise against it.

''I would be very wary of taking unsecured credit card debt and attaching it to a secured asset (your house). I know it's been a marketing ploy,'' he said.

Time to upgrade?

So what about selling your current home and upgrading to a new one?

Obviously, as a current homeowner, you've got your house to sell first. Banks aren't as willing to give bridge loans to help you buy the second home while you're trying to sell your current one, and homeowners aren't asking as often for them either, said Durr.

''We're going to get appraisals on both properties and do a loan-to-value (ratio) based on the appraised values, not based on what they have the properties for sale for,'' said Durr.

Now is a great time to upgrade to another house, but Jim Camp, partner and general manager with Cutler Real Estate, said he'd recommend selling your current house first. While you might not get as much for your house as you wish, you need to keep in mind that you'll be able to get a better deal on your upgraded house, too, Camp said.

''If I'm selling my house at $100,000, I may not get the full value of that and may get 5 percent less. But if I'm buying a $200,000 house, I've saved $10,000 on that,'' said Camp, a former president of the Akron Area Board of Realtors.

Part of the stalemate, though, is that home owners who want to upgrade to a new house can't sell their house first, said Camp.

''That's why it's so critical for us to encourage the first-time home buyers. They're the ones that start the process,'' he said.

Betty Lin-Fisher can be reached at
330-996-3724 or blinfisher@
thebeaconjournal.com.

 

Today on the front page of the Beacon Journal, Home reporter Mary Beth Breckenridge and I start a two-part series on how to buy your first home. It was designed as a primer for people who might find in a period of high housing inventory and low mortgage rates, that it's the right time to buy a home.

Get the full article here.


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