With mortgage rates at record lows, a trending topic is refinancing and strategies for paying (or not paying) off your mortgage. In today’s show, we highlight some of the pros and cons of the various options for homeowners.
The refi: Refinancing your mortgage can be a great strategy for lowering your interest rate, lowering your monthly payment, and subsequently building equity in your home faster. Some things to consider: closing costs and other fees, how long you plan to be in the home, and what you will do with the extra cash. Use this calculator to determine whether the savings you will realize from refinancing make sense in relation to the fees and the time you plan to remain in the home. We also do not recommend refinancing if you are planning to retire soon or if you have already gone through the refinancing process recently.
Paying off your mortgage early: Paying your mortgage off as quickly as possible is certainly an attractive option for those of us who are averse to debt of any form. However, once you make those house payments, there is no guarantee that you can easily get that money back if you need it. According to Forbes, there are even some lenders that charge a prepayment penalty to those overachieving borrowers. Before piling all of your extra cash into your home, we recommend that you have a sufficient safety net of cash to get you through unforeseen circumstances (such as job loss, etc.). Check Bankrate.com for the best current interest rates for your cash reserves.
Some final notes:
-If you have not thought about refinancing, now is the time to look into it. Consider doing a 30 year rather than a 15 since rates are so low right now. It may be nice to have that flexibility in the future.
-Look into the new HARP 2 program designed to help homeowners who have stayed current on their mortgages but are now underwater. To qualify, your mortgage must must have been sold by June 1, 2009 to either Fannie Mae or Freddie Mac. You must be current for the last 6 months with no more than one missed payment during the last 12 months. Also, you have to own at least 80% of your home’s current value and this must be your first HARP refi.
-The FHA has a streamlined refinancing program that can lower your interest rate with minimal hassle – no verification of income or employment, no credit check or appraisal of your home.
Please share any of your experiences with refinancing below or on our Facebook page. Have a great weekend, everyone!
Hey Brian and Bo,
I just listened to the podcast. I know that you were noting that GMAC “renamed” themselves. Are you aware that the “renaming” is a result of them filing for bankruptcy? My sister has her mortgage with them, and she received her notice that they declared bankruptcy.
Also, she is someone who had been trying to take advantage of the TARP monies and other programs that are available to homeowners underwater. GMAC has provided four seperate options for her – three of those options were going to require her to pay MORE than her current payment and the other was a reduction of $35/month. She’s done a lot of investigation into them as a result of her situation, and apparently they pretty sketchy. She knows that since they have “offered” her a new payment oiption (technically, though asking her to pay more is really the intent of HAMP or the other programs) it has been reported to the Fed Gov’t each time. Thus they appear to be doing the right thing, but that is only because banks have to report modifications “offered.” The change in payment isn’t required to be reported, so the fact that the “modification” requires borrowers to pay more never gets reported.
Also, her lawyer has been in touch with them to get their formula for making modifications. They refuse to provide a formula, and seeing as each modification has been different despite the facts, income, etc. not changing implies that they have no formula (which they are supposed to).
That type of behavior isn’t usually limited to one department, so you have to think that the rest of their departments are probably acting in similar fashion.
Anyway, just wanted to point out that GMAC is less than reputable and in bankruptcy since you noted them by name in your podcast.
Stephen
Hi Brian,
Great show as always. During the episode you mentioned that you feel people should be saving 15% to 20% of their gross income. Do you include or exclude employer contributions to retirement accounts when making this calculation.
Thanks
Gerry,
Great question! The answer depends on how much of a ‘super saver’ you want to be. I advise people to try to get to that 15% – 20% without the employer contributions. If, however, you need that little bump to get you to that threshold, you’re still doing great!
Brian
Brian,
Enjoyed your podcast on mortgage refinancing. You mentioned that you might put the apples-to-apples breakeven calculator on the website. We’re about to refi and that would sure be helpful. Thanks.