Some industry experts predict an increase in rates in 2012 – while others expect continued low rates. However, the Federal Government has recently announced enhancements to the Home Affordable Refinance Program (HARP), which may create new refinance opportunities for homeowners currently “underwater” on their mortgages.
For many homeowners, refinancing at a lower interest rate can save thousands of dollars over the life of a loan. But not everyone is eligible. Consider these things if you are looking to refinance:
- Equity. Historically, you can’t be “underwater,” although HARP may help homeowners whose homes have lost value or who have previously consolidated other debt. The best refinance candidates have at least 20 percent equity.
- Good Credit. Lenders want a credit score of at least 700 in today’s tighter mortgage market. Delaying refinancing gives you opportunity to improve your credit score, but you also run the risk of rates increasing.
- Income-to-Debt Ratio. Applying for a refinance is similar to applying for an original mortgage. Lenders want to see you have a reliable income and ability to make the payments.
Refinance Costs. You will spend approximately 3 percent of your outstanding principal in refinancing fees. Typically you need to stay put for at least three years and secure a rate at least 1 percent lower in order for refinancing to make sense.