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Refinancing: Is it Right for You in 2010?

Your home is your castle, and probably your biggest investment. Thinking of refinancing the castle? Refinancing simply means having a mortgage on a home and applying for a second loan to pay off the first. This new mortgage might be attractive to a homeowner if he is going to end up with lower monthly expenses or extra money in his pocket. Refinancing runs parallel to applying for a home loan. Credit is checked and debt ratio is examined. According to Chris George, CEO and founder of CMG Mortgage, $2.1 trillion in mortgages originated in 2009 with that number expected to fall to about $1.35 trillion in 2010. 45% of that share will go to refinancing. There are several reasons why a person might choose to refinance in 2010.

Lower Payments

Interest rates are historically low right now, and Mr. George affirms that the vast majority of refinancing in 2009 was specifically targeted toward the acquisition of lower payments. He set up this scenario for a conventional 30-year fixed rate mortgage with an average $300,000 balance. A typical interest rate reduction would be 7.5% to 5%. Such a cutback would lower a mortgage payment from $2097.64 to $1610.46.

Tap Home Equity

Chris says that approximately one-third of the refinances in 2009 were cash-outs, nowhere near levels reached when property values rose. Yet many clients still want to extract money for home improvements, especially energy efficient ones. More often than not, however, mortgagees are seeking debt consolidation.

Change Mortgage Products

Ethan Ewing, president of Bills.com believes that refinancing from an adjustable rate loan and locking into a fixed rate in this interest environment makes sense. He says that even though the adjustable mortgage rates may well be lower right now, they will rise again and A.R.M.’s will quickly leapfrog the low fixed rates.

Shorten Loan Length

Chris George maintains that home equity has shrunk considerably with falling property values; therefore, borrowers are looking for unique ways to build equity. Paying down mortgages more quickly could be an alternate solution. Refinancing your mortgage from 30 to 15 years can eliminate thousands of interest dollars, making you a homeowner sooner rather than later. Not many occasions are as invigorating as a mortgage burning party!

Leigh Lester Holmes, Housing Program Manager of CESI Debt Solutions tells me, “This is a great time to refinance because rates are low and lenders are hungry for the business. Refinance before rates go back up…but be sure to negotiate!”