Thursday, January 1, 2009

When Is It Time To Refinance? (Part 1 of 6)

A long-time, good client of mine recently asked “how do I know when it makes sense for us to refinance? Is there a set rule of thumb we should follow?”.

Well, there really is no set in stone rule, as there are so many variables involved in determining this. I know a lot of people use a very rough rule of needing to reduce your interest rate by at least 1%, but there is so much more that needs to be considered than just the interest savings alone.

One of the most important determinations my clients and I make together is what their main objective is and which loan program offers the pricing that best helps them meet that objective. For example, not all that long ago, for the person holding a property for a short time whose monies may have been tied up in the stock market making a nice return for them, the Option ARM (adjustable rate mortgage) may have been the best choice for many of them, as while they were paying the initial low interest rate they could leave their investments where they were at, bringing them great income.

But, this situation only fits a small segment of those seeking financing. More often, people are looking to refinance in order to:

  • Exchange an existing adjustable rate and/or interest only mortgage for a low fixed interest rate
  • Consolidate mortgage(s) and/or other bills
  • Exchange an existing fixed rate mortgage for a lower fixed rate mortgage
  • Take a substantial amount of cash out from equity in order to do long overdue updating or purchase a retirement home while prices are low

As with all your major financial decisions, you should include your tax professional in the loop during the decision making process. The professional services of your tax expert could help you avoid serious tax consequences. Don’t you think the fee they charge you might be small in comparison to the tax liability a mistake could bring you?

To keep these articles manageable in size, I’ll be addressing each case in its own post, as well as some common hurdles being faced in today’s lending environment. Until then,

See you at the closing table!
Karen Cooper – OR/CA Mortgage Consultant –

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