Is it time to refinance your mortgage?

Filed in archive becoming a better borrower on June 10, 2009

The economy is terrible. Yes. But there is a bright spot for certain homeowners: The weak economy has resulted in lower mortgage interest rates. That means it's a good time to refinance a mortgage loan.

Of course, even with low interest rates, refinancing doesn't make sense for everyone. CNN recently ran a good primer on when it does make sense to refinance a home loan.

According to the CNN story, and Rodney Anderson, the mortgage loan officer from Plano, Texas, that the story quotes, it generally makes sense for homeowners to refinance their home loans if their savings will in two years cover their closing costs, which can run at $2,000 or more for most refinances.

Anderson is quoted as saying that for mortgage loan amounts over $3,000, refinancing today may make sense if the borrower's current interest rate is more than 6.25 percent. That number changes depending on a borrower's loan amount. For instance, for mortgage loan values of $200,000 to $300,000, borrowers with interest rates of 6.5 percent of higher will probably do well to refinance.

For homeowners with loan values of $150,000 to $200,000, the interest rate usually has to be at 6.75 percent or higher for a refinance to make sense. And those with loan amounts under $150,000 may need a current interest rate of 7 percent for a refinance to make good financial sense.

But even if homeowners fall into these categories, they may still not be able to refinance their existing mortgage loan. Home values have fallen during the last two years in most parts of the country. Some homeowners may, in fact, owe more on their residences than what they are worth. Homeowners in this situation will not be able to refinance.

Also, it's important to remember that refinancing a mortgage loan involves a mountain of paperwork. Getting all this together isn't the easiest task. So those homeowners who are interested in refinancing, should get the process started early.