American Retired Seniors

Mortgage interest rates are at a 30 year low. Homes prices are also at an all time low in many markets.  This is good news for those interested in buying a home or refinancing an existing mortgage.  However there are serious considerations before making this move in a down market and during a recession.People with good credit, good jobs and savings should be able to write their own ticket when it comes to buying and refinancing.  Those with good credit, but whose savings have declined in the past few months might be in for a more challenging time. 

Ensure your credit score is over 650.  Contacted the major credit bureaus to find out what your credit score is. If your credit score is on the decline because of missed credit card, auto or current mortgage payments, chances are you will not qualify for a new home or for refinancing, that is the pain caused by Wall Street and the subprime mortgage fiasco.

On the other hand, if your financial situation and your credit rating has improved and is better than when you first bought your home, you may qualify for a lower interest rate on a new mortgage.

Remember that refinancing to reduce debt can be a smart move, but one should not refinance in order to borrow more money for consumer purchases (car, vacation, etc.), this could set you back significantly on your financial state and increase your overall debt, while lowering your credit score.

Educate yourself to know the difference between a 30-year fixed (rates remain unchanged), balloon or adjustable rate mortgage. It is always the best idea to go with a 30-year fixed rate to ensure your monthly mortgage payments to not increase.  If you currently have an adjustable rate mortgage you have seen your mortgage payments increase year after year.  If at all possible, consider refinancing to a 30-year fixed rate, if you can quality. This is also the best option for planning one’s financial budget.  One of the best tools available is to consider attending a Home Financing Seminar.  Secondly and before jumping into financing or refinancing, be sure to pre-qualify.  This will give you the knowledge of whether you qualify for a mortgage before actually committing yourself financially.

Another consideration to pay off a mortgage faster and to accelerate the buildup of equity is to shorten the term of the mortgage loan to a 15-year fixed, but only if you can truly afford the increased monthly payments.

If you have a lot already invested in an existing mortgage, you may find it appealing to refinance, however this may actually cost you more money in the long term.  That is because your mortgage payments in the early years of financing collect their money in interest during this period.  If you have lived in your home for a few years, then over time the mortgage payments begin paying down the principle and the interests payments become reduced over time.  Considering a refinance will start the interest clock all over again; therefore you will be paying more interest all over again.

If your current home value has fallen due to the current economic crisis, you may not be able to refinance or should you qualify you will actually lose significant money that you have already invested because the value of your home has been diminished. In this case it is best not to refinance.

Remember, there are other financial considerations with mortgage fees and closing costs that add up quickly, which can add up to thousands of dollars going into the pockets of the finance company and mortgage company.  These institutions are there to make a profit, regardless of whether they appear to ‘be on your side’.  Read the fine print.  Understand exactly the payment arrangements and full cost of the mortgage loan, whether a first time buyer or refinancing an existing mortgage. 

Read the fine print of your current mortgage to learn whether you will be assessed penalties or fees for ‘getting out’ of your existing loan early.  Many financial institutions may wave these fees in order to obtain your business.

However, potential homebuyers do have one advantage not previously afforded to them. In today’s financial climate, ask your banker or mortgage lenders to reduce or drop closing costs and loan generation fees. These fees can be negotiated and financial institutions do want to make a deal and make money, so remember you have power in negotiating your costs and fees down to make the refinancing or sale happen.

Seek out only reputable financial institutions; remember Fannie Mae, Freddie Mac, AIG, Bear Stearns, Lehman Brothers, Countrywide, HSBC, and many others are on shaky financial ground.  It is best to locate a small, local, hometown back; with people who actually live in your community.

Also, ask banks, brokers, or other lenders to reduce or drop closing costs and loan generation fees. Many don’t know that these can actually be negotiated. Remember, they want to close a deal to make their money and you have power in negotiating your costs and fees down to make the refinance or sale happen.
Linkback: Home Buying and Refinancing Mortgages in 2009

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