Reasons to refinance remain
By Holden
Lewis • Bankrate.com
Dave Herpers, director of consumer affairs for
mortgage lender Amerisave, appeared on a TV call-in show a few months
ago, and a caller said he had refinanced 10 months earlier from
a 30-year fixed loan to a 15-year fixed. He got a lower rate and,
although the monthly payment went up $100, he was on schedule to
pay off the loan in half the time. The caller said that his wife
had since become pregnant, and they really missed that $100 a month.
After talking with Herpers, they got a hybrid ARM, reducing the
monthly payment.
Homeowners have become much more savvy about
mortgage financing in the last couple of years, bankers say. Herpers
credits consumer-information Web sites such as Bankrate.com, as
well as lender Web sites that are chockablock with mortgage calculators.
"I think people are more educated and aware
of mortgage lending and home equity lending to manage their personal
finances," Herpers says. A couple of years ago, callers to
the CNNfn show that he appeared on wouldn't have known to ask about
piggyback loans. Now they ask about the tax implications of refinancing
to get a
piggyback home equity line of credit to pay for the kids' college
tuition.
Cash-out refi
Extracting cash from a home's equity is another reason to refinance.
One way to do it is via a cash-out refinancing. Here's how it works:
Let's say you owe $50,000 on a house that you bought for $100,000.
Now the house is worth $150,000. You could refinance for $100,000
and receive $50,000 in cash to buy a Hummer, cruise to Europe in
a luxury suite aboard the Queen
Mary 2, pay the kids' tuition, pay off credit cards, or remodel
the house.
Another way might be to get one of those piggyback
equity loans. In the above example, instead of taking out $50,000
cash, you could get a home equity line of credit for that amount.
It's a revolving credit line that can be used for intermittent or
recurring expenses such as tuition or home remodeling bills.
There are a few other reasons to refinance,
says Frank Previte, president of Houston-based Alpha America Mortgage.
People who got rural development loans from the U.S. Department
of Agriculture weren't able to refinance under the program until
not long ago; now they can.
Manufactured homes
Previte says there's a lot of pent-up demand for the refinancing
of manufactured homes. Because of a high number of loan defaults
based on loose lending standards, some troubled lenders dropped
out of the market, and mortgage titan Fannie Mae tightened lending
standards last year. Amid the turmoil, some people were unable to
refinance their loans on manufactured homes. Now they can take advantage
of lower rates.
Another big group of potential refinancers consists
of people who had lousy credit when they bought their homes a few
years ago, and have cleaned up their act and raised their credit
scores since then. "They may have a rate of 8 to 11 percent,
depending on just how bad their credit was," Previte says.
It often makes financial sense for someone with
a poor credit history to go ahead and buy a house, then pay all
bills on time for three years. "After three years, they should
have their credit in shape and should go ahead and do an orderly
refinance" at the prevailing rate for borrowers with good credit,
Previte says. They can get 30-year loans but can ask their lenders
to put them on schedule to pay off the loans in 27 years.
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