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Mortgage Refinancing: Is it too Late?
Published: 01/17/2011 by Kristie Lorette
» Mortgage
Since the downturn in the economy and the near collapse of the mortgage market, interest rates have been hovering at an all-time low. As of January 2011, the average interest rate in the country for a 30-year fixed rate mortgage is below five percent at 4.125 percent. Eventually, interest rates are expected to increase. Until and if this happens, there is still time for you to consider a refinance of your current mortgage. As far as the interest rates are concerned, there is still time to lock into a lower rate. Qualifying for the mortgage, however, may be a different story.
Qualification Guidelines
While it is not too late to refinance for a low interest rate, the qualification guidelines for mortgages have gotten stricter—making it harder to qualify for the same mortgage you easily qualified for a few years ago. Lenders are pickier on who they will lend the money to, which means that if you credit and finances are not in order, it may be too late to qualify for a refinance. Your first step in evaluating whether a refinance is a possibility is to review your credit score and credit history. Great and good credit borrowers are more likely to receive refinance approval. You should also consider your employment situation, income and debt level. All of these factors play a role in whether a lender is willing to approve you for a mortgage refinance.
This is not to say that a bad credit or mediocre credit borrower cannot receive approval from some lenders. The problem is that bad credit borrowers tend to pay higher interest rates than good credit borrowers. When this is the situation, it may be too late for you to get a better interest rate than your current mortgage.
Feel Out Your Options
Before deciding that the clock has run out on your refinance, conduct some research. Start with your existing lender. Gather information, such as the interest rate on establishing a new mortgage and the closing costs on a refinance. Also, determine the specific criteria the lender has for existing mortgage holders to refinance. You should then gather refinance information from at least two other lenders, gathering the same information. Once you have the information gathered, you can better determine if you meet the requirements for qualifying for a refinance with all or any of the lenders.
Do the Math
Just because the interest rates are at record low levels does not mean that you should run out and refinance. It is important to run the numbers to determine if refinancing is worth the cost. For example, if you only expect to live in your home for another year or two, then refinancing is not typically in your best interest because you will not recoup the closing costs you have to pay up-front. If you are in the home for four or more years, however, it can pay off to refinance for a lower interest rate.
So, the ship has not sailed away on refinancing altogether. Whether or not you should and could refinance, however, is another story. Your personal financial situation, credit score, job history and your intentions for staying in the home are all factors that determine whether or not your refinance ship is still waiting at the port.
