Refinancing Your House in the Economic Storm

Posted February 13, 2009 by Bernz

The only potential bright spot in today’s crumbling economy is the continuing decline of interest rates. Not so great for investors but good news for borrowers. Mortgage rates are at historic lows and now may be a great time to refinance to a lower rate. There are some considerations to keep in mind before approaching your bank about your mortgage.

refinancefeature1. Know your credit score. One of the first things a bank or mortgage company will do when you approach them for refinancing is to find out your credit score. It makes sense for you to do it first so that you can clean up any errors or inconsistencies and be able to explain any derogatory items on your report.
2. Calculate the costs of refinancing. There are many costs to setting up a new mortgage and there may be a penalty charged by your bank or mortgage company for ending your existing mortgage early.
3. Calculate the time frame you have to work with. This is the last piece of information you need to determine whether refinancing makes sense for you.

Let’s say that your new mortgage will save you $358 per month over your existing mortgage payment. The total costs of the refinancing are $3,012. That means that it will take 3,012/358 = 8.4 months to recoup the costs of the refinancing with the savings. If you plan on living in your house for longer than that, it makes sense to refinance. If you plan on selling before then, you may wish to forego refinancing.

refinancingIt’s a good idea to discuss your refinancing needs with several banks and not just your own. Other banks may have programs that lower closing costs in order to capture a new customer. On the other hand, your existing bank may waive certain fees because they already have a lot of the necessary paperwork in hand. While it makes sense to shop around for your refinancing, be careful of how many times you authorize those banks to perform a credit check. Multiple credit checks in a short period of time can drop your credit score which makes you a less attractive prospect to a bank.


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One Response to “Refinancing Your House in the Economic Storm”

  1. Johanne Says:
    March 5th, 2009 at 7:46 pm

    Sensible advice. I’d say also to check if your mortagage has a prepayment penalty before refinancing.

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