Refinancing gives homeowners some breathing room

If you have an adjustable rate mortgage and it's about to reset, now would be the time to refinance.With a tough economy that continues to spiral downward, a refinance can not only get a consumer into a secure fixed-rate loan, but it can save them as much as $350 per month on their mortgage payments. However, the rules have changed or, as mortgage professionals say, gone back to "old school lending." That means, you have to clearly show you can handle the loan."Money is very cheap to borrow right now," said Ryan Rivera, a mortgage planner with Goldmine Financial Group in Auburn. "When it comes down to the new way of obtaining any type of mortgage, you clearly have to support the loan amount — it's as simple as that. "Rates are unbelievably low, which has triggered this tidal wave of refinancing."Mortgage rates have dropped as far as 4.79 percent during this refinance period, which started to gain momentum in late October of last year, according to David Ryland, dean of loan originators at Big Valley Mortgage in Roseville. But they have since leveled off into the mid-5 percent range, he added. At one point lenders lowered rates to as low as 4.5 percent, but this was only for mere hours. However, other lending institutions did not follow the trend. "It was like Frank the Tank running down the street streaking in the movie 'Old School,' but nobody followed," Ryland said. So what do lower rates mean to the consumer?According to Ryland, monthly payment savings can range from $120 a month to $350, depending on the size and length of the loan and how low the interest rate can go down.But homeowners need to be aware that there will be fees with that refinance, the days of no-cost mortgages are over. Lenders are no longer willing to cover closing costs in return for a higher interest rate, Ryland said. Closing costs will generally range from 1.5 percent for loans in the $400,000 range, to 3.5 percent for loans around $100,000. In dollar amounts that can account for closing cost fees totaling $2,700 on the low end and up to $5,500 on the upper end. Some forms of refinancing, such as conventional loans, will require appraisals. Others, such as Federal Housing Administration loans, make the process much easier."If you're in an FHA loan, we do a streamline refinance all the way," Rivera said. "Even if the house is worth less than what they owe."But Rivera and Rayland are quick to caution that if you have no equity left in your home, and you're upside down, refinancing in most cases will not be an option. So how do you know if you should be looking to refinance? If you have a loan balance that's 75 percent to 80 percent of market value, and the interest rate is close to or above 6 percent, it's worth investigating, Ryland said. Homeowners with that 6 percent interest rate can refinance a whole percentage point lower, and maybe even more, depending on the current state of the market. Auburn resident Doris Marx took advantage of a refinance recently, locking into a 30-year fixed rate mortgage, which lenders say is the best bet for homeowners. Marx had a fixed-rate, interest-only loan that was close to 6 percent. Uncomfortable about the upcoming adjustment that would jump her payment some $400 per month, she decided to get into a 30-year fixed rate mortgage. "With the market the way it is, I thought I better refinance while the mortgage rates were going down," Marx said. "I was uneasy all along about the interest-only, with the mortgage rates dropping, it just gave me an opportunity to really go for it — go for the 30-year fixed."As interest in refinancing for a lower rate and getting into a secured 30-year fixed-rate loan increases, mortgage professionals also want consumers to think about how a refinancing would work into their overall plans. "When it comes to taking a refinance it has to make sense and cents — both common sense and financial sense," Rivera said. "You have to recoup the costs of refinancing."The amount of time it takes to recoup refinancing costs can range anywhere from three to four years, according to Ryland.Mortgage consultants also recommend that a refinance can be used to help pay off a loan faster as well, such as refinancing from a 30-year loan to a 25-year loan for a slightly higher payment. Cutting off five years of payments to pay off the loan quicker. But no matter what the reasons for a refinance, lenders say now is the time to investigate, but also be sure you're ready to shoulder the costs. "We're back in the old-school environment. I've been telling my peers in our office, 'old school is back to rule,'" Ryland said. "You have to prove you have the income, you have to prove you can make your payments on time."The Journal's Andrew DiLuccia can be reached at andrewd@goldcountrymedia.com, or post a comment at Auburnjournal.com.