Thursday, February 12, 2009

If you are thinking refinance, think it now!

About half of my work week consists of contacting mortgage lenders and brokers around the country, including current and potential clients. Some appear to be holding the "wait and see" attitude regarding campaigning for business, including refinances. They could lose out, just as consumers could, by not looking into a refi as soon as possible.

Personally, my wife and I took advantage of the quick dip a year ago and reduced our monthly mortgage payment by more than $200 per month while the getting was good. I already know that this latest dip isn't worth it for me, but that's because I have been working with realty agents and mortgage lenders for 20 years. I'm not like most home owners and potential buyers out there.

Lowering the monthly payment is not the only reason for a refi. Just because the amount due is lowered on a refinance, it doesn't have to mean a reduction. Paying the $200 per month (or whatever you save) toward the principal will make a difference in the long run.

Yet, many mortgage lenders are playing the "wait and see" game and it keeps consumers from finding out the advantages of refinancing now if it makes sense. The smart ones have already done so, some at higher rates in late 2008 than what is out there right now.

Freddie Mac reports that U.S. homeowners cashed out over $17 billion (that is BILLION) in home equity through the refinance of prime first-lien mortgages for in the 4th quarter of 2008. That is the lowest amount since the first quarter of 2001. Statistics show that 14% of refinancing homeowners paid in extra money when they refinanced, reducing their mortgage debt. This is the highest cash-in share since the fourth quarter of 2004, when 19 percent of refinancing homeowners put cash into their home equity.

Not only that, but by playing the "wait and see" game, the additional funds being paid each month until or unless you refinance your home are going to add up. In other words, if you wait 6 months to save $300 per month instead of $200, it will in effect cost you an additional $600 by waiting.

In addition, there are no guarantees to home owners that the fees involved with a refinance will not rise between now and six months from now. Using the example in the previous paragraph, if six months from now the lender's fee to refinance increased even $500 from today, your waiting for better rates would actually be an additional $1,100 out of your pocket. (Compare that amount with your current monthly payment!)

This while I talk to homeowners who "figure" the mortgage rates will go down even further this year, and to lenders who want to "wait and see what happens". Seems to me there are a lot of homeowners who should know their mortgage refi options.

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