Tuesday, August 31, 2010

Why Refi? Is it right for you?

According to a new article at MarketWatch based on CoreLogic data, more than a quarter of households that refinanced between January and June of 2010, chose a 15-year fixed-rate mortgage.  This compares to only 18.5% who chose that option in 2009, and is nearly three times the 9% that chose a 15-year refi in 2007.

Why is the 15-year refi becoming so popular?
  • One possible explanation is that interest rates on 15-year loans are now so low that borrowers can handle the larger mortgage payment.  If someone has a 6.5% 30-year mortgage on a $200,000 house, their monthly payment is about $1,270.  Refinancing to a 15-year fixed rate at about 4%, means a payment of about $1,480.  An extra couple hundred dollars a month and the loan is paid off over a DECADE earlier.
  • Could a second explanation be a change in our national psyche?  Is it possible that we as a nation are becoming more debt-averse?  Personal finance blogs and magazines are flourishing.  Recent reports show that we owe less on our credit cards and we're even paying off our car loans.  Hmm...  Your thoughts are welcome in the comments.

Now... paying off debt is a GREAT THING.  And refinancing from a 30-year to a 15-year loan can save a tremendous amount of money in interest payments over the coming years... but refinancing can also be dangerous!  The MN Home Ownership Center oversees a network of Refinance Counselors* (Housing Counselors) that provide home owners with an opportunity to compare a current mortgage against a potential refinanced mortgage or second mortgage. Counselors take time to compare the terms with you, and to tell you what those changes will mean for your monthly finances - in real terms - without trying to sell you ANYTHING.
 
For more information about Refinance Counseling in Minnesota - or if you're thinking about refinancing your mortgage - visit the MN Home Ownership Center's website, here.
 
 
* Minnesota law requires you obtain a certificate from a qualified "Refinance Counselor" before you refinance your loan if you have a "special mortgage" - a loan from a state, local or tribal government or nonprofit organization with payments that vary with income, zero or deferred interest or other unique conditions, and is highly recommended for ANYONE thinking about refinancing their mortgage.  A small fee for this service may apply.
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1 comment:

  1. Emily GreenAugust 31, 2010 at 9:04 AM

    You can pay off a 30 year loan in 15 years without going through the expense and committment of refinancing to a 15 year mortgage. Simply pay your monthly payment as if it were a 15 year mortgage and, Wah-Lah! It will be paid off in 15 years. This alows you to cut the interest over the life of the loan while still having the flexibility of the lower 30 year payment.

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