Pocket change

Staff Writer
Columbus Parent

There's been a lot of economic doom and gloom looming these days, but the news isn't all bad. For one thing, interest rates are at historic lows. Now is a great time to consider refinancing your home mortgage.

There are many reasons to refinance.

Lower your interest rate and lower your monthly payment. Who couldn't use some extra cash these days? Depending on your current interest rate and loan amount, the savings could actually be quite substantial; maybe even $100 or more per month. Generally it makes sense to refinance if you can reduce your interest rate by at least half of one percent.

Lock in low, fixed interest rates. If you have an adjustable rate or interest-only mortgage, consider securing a fixed rate mortgage at historically low rates. Chances are, interests will eventually begin to climb.

Change the term of your loan. In addition to reducing your interest rate, you may also reduce or lengthen the term of your loan. Reducing the term of your loan from 30 years to 15 years will save you thousands of dollars in interest over the life of your loan. Lengthening the term of your loan from 15 years to 30 years, however, may provide some needed flexibility in your monthly budget if you or your spouse has recently become unemployed.

Finding the best deal can be a chore but it doesn't have to be. A good place to start is with your current lender. Some lenders, in an effort to retain your business, will agree to refinance your mortgage at a lower interest rate for very low closing costs. You should also compare rates of local banks and mortgage lenders. A number of online resources are available to help you gather this information quickly.

Get all the facts before you choose your lender. Be sure to compare interest rates, closing costs, appraisal and title fees, etc. Only a Good Faith Estimate will provide you all the details necessary to make an apples-to-apples comparison.

A few more things to consider:

What if I am planning to move? If you don't plan to live in your existing home long-term, make sure that it's worthwhile to refinance. Calculate how much you'll save each month by refinancing and divide that into your closing costs. This will tell you how many months it will take to recoup the closing costs. If you will stay in your home longer than it will take to recover the cost, it may be worthwhile.

What if my home is no longer worth what I owe? If you purchased your home within the past few years, it is a very real possibility that the market value of your home has declined and you owe more than what it's worth. If this is a possibility, discuss this with any lender you consider doing business with. Depending on your individual circumstances, there is a chance that you can refinance your loan without being required to pay primary mortgage insurance, as long as you weren't paying it before you refinanced.

What about my home equity line of credit? Your home equity line of credit may present another tricky hurdle to refinancing your mortgage. If your home value has declined, there is a chance your home equity line of credit may also be reduced when you refinance -- possibly to $0. If you have good credit and have made your payments to your current lender on time, one option may be to re-subordinate your current line of credit under your new loan. Many lenders are willing to do this for a small fee of $100-$200.

If the value of your home supports your first mortgage and your home equity line, you will have the option of closing the line and opening a new one after you refinance. If this is the case, be sure that your line was open long enough so as to avoid a penalty for closing it. You should also be certain that your credit history and credit scores will allow you to secure a new line of credit. The rules have changed!