According to Steve Deggendorf, a director in Fannie Mae's economic and strategic research, between 40%-50% of Americans with a mortgage have never refinanced and have an average mortgage rate around 6%. Since there are roughly 50 million mortgages outstanding, that means 20 million-plus households could potentially refinance.
Fannie Mae's national housing survey lists the top reasons why people don't refinance:
- Payments aren't reduced enough.
- Closing costs are too high.
- Don't want to extend term of loan.
- Trust issues with lender.
- Under water on mortgage or other qualification issues.
Alright, here are a few things to reconsider before you close the door completely on a refinance.
- The Federal government has extended the H.A.R.P. program through 2015. H.A.R.P. stands for “Home Affordable Refinance Program.” Under the H.A.R.P. guidelines, even if you owe more money than your house is worth there’s a good chance that you can still refinance to a lower interest rate. You must, however, be current with your mortgage payments to qualify.
- Let’s say you owe $200,000 on your current mortgage and have an interest rate of 6%, the principal and interest portion of your payment on a thirty year mortgage would be $1,199. If you were able to reduce that rate to 4.5% your payment would now drop to $1,013, saving you $186 each month. In this scenario your title insurance would be about $1,450 (in PA) and let’s say the lender fees total $900 for a total of $2,350. Based on your monthly savings you would break even in just over 12 months. The rule of thumb suggests that if you can break even within 24 months, it’s worth considering.
- There’s a misconception out there that closing costs are not negotiable. While it’s true that some fees are standard many fees are negotiable, and you can find lenders that offer a slightly higher interest rate and pay all of the closing costs for you. For instance, your new lender will require title insurance on your new loan. In both Pennsylvania and New Jersey the title insurance premiums are a fixed amount based upon you loan amount, but the miscellaneous fees and recording fees add hundreds of extra dollars to your out-of-pocket costs. If you hire ALT to handle your settlement and provide the title insurance you won’t pay any miscellaneous fees, we waive them all.
- It’s important to feel comfortable with the lender that you ultimately hire. If you think that the H.A.R.P. program might be a solution for you, we would suggest that you speak with your current lender first. In many cases, they will not require a new appraisal and the application process may be a bit easier. If you’re not comfortable with your current lender we would suggest getting references from friends, co-workers or family members. If you would like a good local lender, visit our website www.ALTtitle.com for a list of local lenders that we work with on a regular basis. The lenders listed on our site are there as a public service; they do not pay anything to be there and ALT does not receive compensation when you use them. When you’ve been involved in more than 10,000 real estate closings, you get a feel for who you would recommend to a friend and who to avoid. The lenders on our site are all local and some of the best that we’ve worked with.