President Obama has recently proposed a new plan to help homeowners refinance their mortgages. (Read this to learn more about President Obama’s plan.)
Refinancing a mortgage means paying off your existing loan and replacing it with a new one. This is helpful because it can help homeowners lower their monthly payments, pay less interest or convert from a 30-year-loan to a 15-year-loan. Especially with interest rates so low right now, refinancing a mortgage would allow homeowners to change the terms of their mortgages and take advantage of better rates. For more on how interest rates impact the economy, check this out.
You Qualify to Refinance If …
- Lenders should be getting the final rules by November 15th, and refinancing under the new rules may be available as early as December. If you owe more than 125% on the value of your home, you’ll likely have to wait till early 2012.
- To qualify, your loan must be owned or guaranteed by Fannie Mae or Freddie Mac and have been sold to you before May 31, 2009. To find out more, look here for Fannie and here for Freddie, or call 800-7FANNIE , or 800-FREDDIE.
- You must not have had more than one late payment in the last 12 months.
- The amount of your loan divided by the value of your home must be greater than 80%.
- Make sure that you’ll stay in your home long enough to recoup the costs of refinancing. For instance, if refinancing costs $2,400 and gives you savings of $200 a month, you’ll break even in a year.
- If you decide that refinancing makes financial sense for you, shop around for a broker who can show you a variety of loan options.
- If your job is insecure now, don’t use up savings to cover your refinancing fees.
- Ask how long you’ll get your new rate and whether it’s locked in.
- Ask for a term that makes sense for your life—i.e. you might choose to get a term that ends when you reach retirement or when your kids go to college.
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For the basics of refinancing and how to make the call on whether you should do it, read this story from real estate expert Alison Rogers.