Many of the people we are talking with WANT to refinance – but they figure it’s probably not worth it. Generally those sentiments run from two different camps, either the homeowner is concerned that they have no equity in the home to refinance (and don’t want to pay closing costs out of pocket), or they just figure they have a pretty good rate now, and don’t see a big difference from 5.75 to “whatever the mortgage rates are down to now.”
So let’s talk about what you SHOULD consider with a refinance…
The most fundamental consideration in whether a homeowner should refinance an existing mortgage is the break-even point, which means how soon the cost of the refinance will be recaptured through lower monthly payments. In general, most homeowners are looking for a three year recapture period. If you are not going to recuperate in that time period… it might not make sense.
To calculate a break-even point, divide the expected total cost of your refinance by the monthly savings on your loan payment. The result is the number of months that would be required to recoup the cost.
Equity... in today’s housing market, preserving or building equity is important. We’ve done loans for people this year who wanted to go into a 15 year mortgage because they wanted to build equity faster… and we’ve made loans to folks who wanted to go from a 15 year to a 30 year to get their payments lower (in case someone lost their job).
Many of the homes in the Raleigh, Cary, Wake Forest, Johnston County markets we serve have appraisals that come in just under the tax value. WE are not seeing homes that lost $40 and $50 thousand dollars in value in the last two years like other markets – so listening to what CNN might be telling you about the market in Florida is just not translating.
If your homes does not have much, if any appreciation, and you do not qualify for the HARP 2.0 program – it could present a challenge for homeowners. The problem? A higher loan-to-value ratio can trigger the need for mortgage insurance. If you’d like to refinance but are short on equity, you should still do the math, because your mortgage insurance payments may be tax-deductible and could be eliminated if your equity increased in the future.
Additionally,USDA RD Home Loan Program, FHA and Veteran Home Loans have streamline refinances that might make sense:
- VA Home Loans can be used for Jumbo loans, and we do have several outlets for 80-10-10 loans!
- FHA also offers streamline refinance options in NC that do NOT require an appraisal
- USDA is now offering a Streamline program for homeowners in NC.
If you are considering a refinance to lower mortgage interest rates, or to get better terms… please call Steve and Eleanor Thorne, NC Mortgage Experts located in Cary , 919-649-5058. We have some of the Best Mortgage Rates available and the lowest fees!