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Now is the time to re-finance

Posted by Cheryl Costa  August 23, 2010 09:24 AM

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The business section of every newspaper is covering the now historic lows in interest rates but are you really paying attention? My guess is no and that is unfortunate.

Today, it is possible to lock in a 30 year mortgage with no points and no closing costs at 4.375 percent. That is truly an incredible rate and the best part is that you can do the refinance with no out of pocket costs to you if you choose the no points and no closing cost option. Similarly, you can get adjustable rates in the mid threes also with no points and no closing costs. (This option might be best for you if you only expect to stay in your current home for 3 to 7 years.)

The only "cost" to borrowers is the time it takes to complete the paperwork, which does seem onerous at first but it really isn't that bad. Basically what you need is: copies of your past two years tax returns, copies of your past two years W-2s, copies of your most recent paystubs and copies of your most recent checking, savings and investment statements. You also need to complete the paperwork which really isnt complicated at all and submit to a credit check and a home appraisal. For a few hours of your time, you can save hundreds of dollars per month. As an example, consider a couple with a $350,000 mortgage who refinanced a few years ago and currently has a 5.5 percent mortgage rate. That couple has principal and interest payments of $1,978. If they refinanced today at 4.375 percent, their payment would drop to $1,741 -- a savings of over $236 per month and $2,800 per year. If they knew that they would be moving in a few years, they could take out an adjustable rate mortgage with a payment of $1,591 per month and be saving almost $387 per month. That is real money these days!

The only "catch" is that mortgage underwriting standards have really tightened up in the past few years so your credit score and financial situation really has to be top drawer. Also, these very low no points and no closing cost rates are generally only available to borrowers who have mortgages of $275,000 and higher. You usually can't find rates quite this low if your mortgage balance is anything under $200,000. Also, in most circumstances, you must have a loan to value ratio of at least 80 percent so a refinance might not be possible if you bought your home in the past few years and only put a small amount down.

All that being said, this really is an incredible time to be doing a refinance so now is the time to make some calls and get some rate information. A few hours of your time gathering documents today or this weekend could save you hundreds per month.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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ABOUT MANAGING YOUR MONEY
Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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