Chicago RE with Julie

Blog by Julie Woodward-Trenker

Chicago, Illinois

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Chicago RE with Julie

To refinance or not to refinance, that is the question!

Mar. 16, 2007

Categorized in: Home Finance

Tagged with: credit, home ownership, refinancing

My guest writer today is a wonderful Mortgage Broker (I personally use her!) who offers sound advise about whether or not to refinance.

To refinance or not to refinance, that is the question!

I receive dozens of phone calls from clients every week asking whether they should refinance their current home loans. There are many factors to take into consideration when refinancing and rates aren’t the only thing to consider. In fact the state of Illinois and several other states now require to all borrowers to sign what is called a “Tangible Benefits Disclosure” when refinancing. Under Illinois law, the new or refinanced loan must show reasonable, tangible net benefit to the borrower after taking into account the terms of the new and existing loans, the cost of the new loan and the borrower’s personal circumstances. Here are 5 reasons to refinance that make sense and offer a tangible benefit!

1) The obvious, but not the only reason to refinance, is to lower your interest rate and save money! If your in an Adjustable Rate Mortgage (ARM) and your rate has just adjusted or is about to adjust in the next few months, chances are your mortgage rate will adjust significantly higher. It’s time to consider refinancing into a Fixed rate or a new ARM, depending on your circumstances.

2) Another thing to consider is whether your credit score has greatly increased since you purchased your home. If your credit score was below 680, you had a bankruptcy or other derogatory credit, chances are that the interest rate you signed for was a little bit higher. Now is the time to check your score and see if you can refinance at a lower rate.

3) Consolidate your 1^st and 2^nd mortgages into one loan or get rid of Private Mortgage Insurance (PMI). If you purchased a home and put no money down or less than 20% down, you likely have a 1^st and 2^nd combo loan also known as an 80/20 or 80/10/10 or you might be paying PMI. Now is the time to speak to a mortgage consultant and consolidate the 1^st and 2^nd loans or rid yourself of PMI and lower your monthly payments substantially.

4) Payoff those high interest credit cards. In January 2006, credit card companies doubled their minimum monthly payments from 2% to 4%. This means that if you had a credit card balance of $10,000 and payment of $200, your increased payment is now $400. If you were to refinance at a rate of 6% and payoff the $10,000 credit card debt, your payment would only increase some $60 per month.

5) Cash out your equity for home improvements or pay for college tuition. Instead of borrowing the money from credit cards or financing with home improvement companies, use the equity in your home to finance any needed home improvement projects. Also, if your children are nearing college age and you don’t have enough money socked up for tuition, consider setting up a college fund with the equity in your home.

When calling your Mortgage Consultant, check the above 5 points to determine whether there is a “tangible benefit” of refinancing your current loan; however, an experienced Mortgage Consultant will take the time to review your current terms verses the new terms and will show you what makes sense for your personal needs.