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Should You Refinance?

January 21, 2009

The current economic chaos and uncertain future has negatively impacted many industries and people. Some businesses are filing for bankruptcy and others are seeking relief through bailout plans. The average person has probably suffered significant investment losses especially relative to their 401k or other retirement plan. Even worse, some individuals may be faced with job instability and are probably starting to look for ways they can cut expenses to start saving for peace of mind or to bridge the gap in the losses that have been sustained over the past five months.

Everyone knows that one of the biggest issues plaguing the current economy is the housing crisis caused by over inflated property values. With property values declining, many homeowners find that the balance owed on their mortgage is more than the value of their home. One of what may be few opportunities during this economic upheaval is refinancing your home mortgage. Rates on 30-year conventional mortgages are currently around 5%. It is expected that the rate will continue to drop.

The current crisis has caused lenders to be more selective with extending credit and the days of financing 100% of the property’s value are likely long gone. If you have a good credit score and equity in your home, refinancing may save you significantly. There are a number of factors to consider when determining whether to refinance your current home, i.e. how long you intend to continue owning the home, what is the current repayment term remaining on your mortgage, what is your current interest rate, etc. There are closing costs associated with refinancing and depending on the amount you save monthly, it may take some time for you to break even. If you plan to sell in the next year or two, the savings may not outweigh the closing costs paid to refinance.

If you are going to refinance, retain an attorney to advise you through this process. Most attorneys charge a flat fee to represent a borrower in these types of transactions. The attorney will review the loan documents and review with you the legal obligations you are committing to and consequences if, in fact, your circumstances change and you cannot fulfill those obligations.