Guidelines to refinance your mortgage in 2010
Snag a lower interest rate on your home through a mortgage refinance (REFI for short). A REFI is taking out a new mortgage to pay off an existing one for the purpose of changing to an ideally better term, or interest rate. This could mean lower monthly payments, saving you big bucks over the course of the loan. Current rates start at the historically low 4.8 percent but are predicted to rise next year. The flip side is banks are being very strict right now, so let co-authors of “The Securitization Markets Handbook” — professors Anne Zissu of CUNY City Tech, and Charles Austin Stone of CUNY Brooklyn College — help you strike while the iron is hot.
1 Search the market (example: Bankrate.com) for the best rates, taking into account points (a fee based on one percent of the total loan amount), and service charges. “This can’t be disregarded because you have to have cash up front, and fees can reach into the thousands,” says Zissu.
2 Make sure your credit score is 620 or better, and your income qualifies you to refinance.
3 Do the math on MortgageCalculator.org. Does the new rate reduce your monthly payments?
4 Be wary of Adjustable Rate Mortgages, which offer low introductory rates, but balloon over a short period of time. “When the loan rates reset above the initial teasers, you might be in for a shock,” warns Zissu.
5 Apply for Obama’s “Making Home Affordable Plan” if you can prove financial hardship. “You must be current on your mortgage, and the balance cannot be more than 125 percent of the market value of your home,” says Stone.
6 Recently unemployed? Ask about a streamline loan, which requires fewer procedures (for example, a property appraisal) and doesn’t consider a borrower’s current financial situation.
7 Have relevant documents (example: proof of home insurance and tax returns) ready to give to your lender to prevent delays.
8 Be patient, as REFIs may take 90 days or more.