Yep, that’s right. Ben Bernanke, the Federal Reserve Chairman, refinanced his home. Your eyes do not deceive you. So, what about you? Don’t you think it’s time for you to refinance your home too? According to Bernanke’s financial disclosure form, he took out a 30-year mortgage with a fixed rate of 4.25% to replace one he took out in 2011 at 5.375%. Granted Bernanke has better credit than most Americans and has access to information the average consumer doesn’t, but besides that why are so many Americans waiting to refinance their homes when rates are at historic lows?
Because no two situations are alike. Refinancing isn’t an option for some homeowners because they have no equity in their homes, their homes aren’t worth as much as the balance on their mortgages or they have bad credit while homeowners who have a FICO score of 740 or above, at least 10% equity in their home and few debts are better equipped to refinance.
Regardless of what camp you fall into, deciding to refinance your home is a serious decision and one that requires you to do a thorough fiscal examination, taking a look at your circumstance and where a refinance could be beneficial. Start by looking at your mortgage loan’s current interest rate. Mortgage experts have suggested refinancing if you can secure a rate two points lower than the current rate on your mortgage but with rates at historic lows, these experts are now saying a refinance is still worth it even if you only lower your rate by half a point.
How long you plan to stay in your home is something else you should consider. If you’re considering refinancing your home mortgage, you’ll have to live in your home a certain period of time after refinancing in order to eventually recoup the costs of refinancing. Refinancing isn’t just about getting money back. It’s also about saving money over the long term of your investment in your home. If you don’t plan to stay in your home for long, refinancing may not make sense.
Closing costs are another concern. One way many homeowners are saving money on their closing costs is with “zero-cost” refinancing. Though it’s not really free, you typically roll the costs into the amount you borrow or accept an interest rate that’s higher by an eighth or a quarter of a percent. The benefit is cutting your interest rate and monthly payment without having to fork over any money in advance.
Many homeowners who refinance also forget about the appraisal fee, ranging anywhere from $300 to $500 or more. Be sure to work with local realtors and websites like Zillow.com to help determine the values of homes in your neighborhood. Finally, another reason why homeowners are reluctant to refinance is the fact that it can take between 60 and 90 days for processing, especially since banks have become very particular and under staffed due to so many homeowners also trying to refinance across the country.
Even with less than perfect credit, many homeowners are still able to get a loan, though it may require a larger down payment or a higher interest rate. But one thing is certain, there’s never been a better time for refinancing.