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March 4, 2009

Refinance Time?

ATT00261For most Americans, their home mortgage is their largest monthly bill.  But with mortgage rates falling, is now the time to refinance your mortgage?

Giving a straight yes or no answer is difficult because of the many other factors involved, but is worth looking into.  A change in the mortgage interest rates can make a meaningful change in the monthly payments. Savings of $200 to $400 per month are not unusual.  The key is to talk it over with your financial advisor.  Don’t refinance if the costs exceed the benefits.  Also, those who only have a few years left on their mortgage are probably better off not refinancing.  Still, a careful review is worth the effort.

The Federal Government has stepped into the mortgage market in an effort to make refinancing easier for many.  The Homeowner Affordability and Stability Plan, just announced last month, outlines how the Treasury Department is easing some of the rules for loan modifications and refinancing for millions of Americans.  The new, more liberal rules apply to mortgages that went through Fannie Mae and Freddie Mac, or that were securitized by them.  Under the old rules, you could only refinance if your home equity exceeded 80% of the fair market value of your house.  With home values falling over the last few years, many Americans were unable to refinance.  Now, the rule states that Fannie Mae and Freddie Mac can refinance a loan up to 105% of the fair market value.  The Treasury Department estimates that this rule change can help an estimated five million people refinance their loans.  How can you tell if your mortgage went through Fannie Mae or Freddie Mac?  Contact your mortgage bank and ask.  This new program starts March 4, 2009, so don’t delay.

What if you happen to be one of those 3 to 4 million folks “at risk” of foreclosure?  This plan offers incentives to help keep you in your home. The government is offering the mortgage servicing companies $1,000 per loan modification and a monthly fee equal to $1,000 per year for three years if the new mortgage stays current.  The government is also providing incentives for the homeowners as well.  A homeowner is eligible for $1,000 annually for five years if he/she stays current on his/her mortgage.  The five thousand
dollars goes against their mortgage balance.

To qualify, the investment bank must agree to lower the mortgage payment to 38% of the homeowners’ income.  Then, the Federal Government and the investment bank will share, on a dollar-for-dollar basis, further mortgage reductions to 31% of the homeowner’s income.

Refinancing or loan modifications are one way to take advantage of the current low interest rate environment and put a few more dollars in your pocket each month.  Whether it is the right move for you will depend on a number of factors; your current mortgage rate, the duration of your mortgage, the amount of time you plan on living in the home, closing costs, etc.  Visit with your Money Concepts’ financial advisor.  Allow your advisor to look at your whole financial picture and put it in perspective for you. This way, you will be better suited to make an informed and thoughtful decision for you and your family.