Is it time to refinance?

By Hayes Parnell III News-Aegis

St. Clair County — I am often asked when would be a good time to refinance a home mortgage. A good answer to this question can change daily. There are many variables that must be considered when analyzing this situation. Let’s look at a few situations that could lead you to a refinancing decision soon.

Did you buy your home within the last two years? If so, check the market values in your area to see if your home’s value has survived the recent stagnation or decline in the real estate market. Unless you bought in a coastal area or where market values have spiked the most, your home’s value probably maintained average market appreciation values. If this is the case and current mortgage rate shopping reveals you might improve your situation, go for it!

Did you finance your home with an exotic mortgage product? I’m specifically speaking of interest only mortgages or pay-option mortgages. If this is your situation, you need to first evaluate your home’s current market value and compare this to your mortgage loan balance. Even though your monthly payments may be low, your mortgage balance could be increasing if the minimum payments you’re making don’t cover the monthly interest due. If this is the case, the unpaid monthly interest adds to your mortgage balance, which is called negative amortization. Does this sound familiar? If so, you’re feeling the pinch of an upcoming interest rate change—definitely a payment increase—coupled with a mortgage balance that might be higher than when you purchased your home. Check with a Covenant Bank Residential Mortgage Lending specialist to determine your refinancing options as soon as possible. And stay away from exotic mortgage products! They help people buy houses now that they cannot afford later.

Did you finance your home with a long-term fixed rate mortgage and now find that you will be moving within the next 5 years?  If so, consider a 5/1 adjustable rate mortgage (ARM). I define this as a flexible mortgage product and not an exotic mortgage product. You might possibly refinance to a lower fixed rate for the next 5 years and avoid payment increases from rising adjustable rates because you sell you’re house before then.

A final word: Commissions can influence advice. Always consult a trusted source for mortgage financing options. At Covenant Bank, our Residential Mortgage Lending specialists are here to help you!

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