Refinance Today- With or Without Equity

Have you heard about the low interest rates available to refinance your mortgage so many times that you are tuning it out? Rates have fallen to record lows for 11 of the past 12 weeks. The headlines keep sounding the same note: Record low rates, record low rates, record low rates! Don’t let the noise confuse you or lull you to sleep.

Borrowing with Equity

Refinancing can put more money in your pocket and help your family. If you have equity in your home, you would be wise to look at refinancing, even if you refinanced in the past year.  According to Freddie Mac’s weekly survey of lenders across the nation, the average 30-year fixed rate loan was just over 3.5% as of July 19, 2012

5 Great Reasons to Refinance

  1. Lower Your Interest Rate: You can save a lot of money, refinancing at today’s low rates. The monthly payment for principal and interest on a 30-year fixed rate of $200,000 loan at 5.00% is $1,073.64. The monthly payment on the same sized loan at 4.00% is $954.83- a savings of about $120 per month! And rates are even lower than 4% today.
  2. Adjust the Term: Today’s rates make it a great time to shorten the term of your loan. Lots of borrowers are moving into 15 year loans. You can pay off your loan faster, while perhaps making the same-sized payment that you make today, saving you tens of thousands of dollars over the course of your loan.
  3. Decrease Your Risk: The biggest risk of carrying an adjustable rate mortgage (ARM) is that your payment will go up when rates rise. If you refinance your ARM into a fixed-rate mortgage, you protect yourself from any payment increase when rates eventually go up.
  4. Improve the Terms of Your ARM: Even though fixed-mortgage interest rates are at an all-time low, it may not be the best product for you. (Did you read how Mark Zuckerberg of Facebook took out an ARM on his home?) If you plan to stay in your home for less than 7 years (or if, like Zuckerberg) you can afford to pay your mortgage in full if rates spike upward, then refinancing into an ARM can be a great way to save money. Rates on ARMs are also at record lows, and they are even lower than the rates available on fixed-rate mortgages.
  5. Getting Cash from Your Equity- You can save money by consolidating higher interest debt or by financing an important family need at today’s low rates.

Borrowing without Equity

Not everyone has equity in their home. In fact, the housing market collapse caused such a huge drop in property values that over 11 million homeowners owe more on their home than it is worth.

Fortunately, there are some refinancing options available for underwater borrowers who’ve been shut out, so far, from the opportunity to save money by refinancing.


The Home Affordable Refinance Program was rolled out in 2009 and then revised and expanded in late 2011.

You may be able to take advantage of (HARP) if:

  • Your loan is backed by Fannie Mae or Freddie Mac  (links to look it up)
  • You’re current on your mortgage payments, without a late payment in the past six months and  no more than late one mortgage payment in the last twelve months
  • You have not done a HARP loan before

Government Refinance Options

You may also be able to refinance your loan, no matter how far your home has dropped in value. No appraisal is required, either.  Look into refinancing, if your current loan is through one of the following government loan programs.

  • FHA – If you have an FHA loan, an FHA Streamline Refinance is a great option. This year, the government drastically cut the costs associated with an FHA Streamline, lowering the cost of the Up-front Mortgage Insurance Premium from 1% of your loan amount to .01%! Annual Mortgage Insurance costs were also cut.
  • VA- The VA Streamline Refinance program makes it easy to apply for a rate and term refinance at today’s low rates, even if you owe more on your home than it is worth. While you can’t take out any cash, you may be able to borrow some additional money to finance energy efficiency improvements for your home

Shop Around

Now that you understand how you benefit from refinancing, you have to find the right lender.  Mortgage interest rates fluctuate from lender to lender.  Fees and costs vary, too. Lenders can also apply different qualifying criteria, so if one lender turns you down, it does not mean that every lender will. This is especially the case for HARP mortgage loans.

Remember, it pays to shop around, when you’re looking to refinance. Comparison shopping is the smartest way for you to find the best deal you can.  Make sure to pay attention to more than the interest rate. Pay equal attention to the fees you’ll pay.

It is also important to know that some lenders are easier to work with than others.  Some lenders work faster than others.  Don’t let price be your only consideration, or you may end up with a lender that over-promises and under-delivers.

5 Responses to Refinance Today- With or Without Equity

  1. I would refinance but the closing costs make it prohibitive for me. My loan balance is less than $100,000 and closing costs would eat me alive.

  2. If only those were options for us. HARP is out since my loan isn’t back by the 2 big guys. I can’t even refinance into an FHA loan because you have to have at least 5% equity. Its really frustrating since we’ve never been late on a payment and both of our credit scores are above 760. We’re just gonna have to twiddle our thumbs and mope while everyone else gets the good rates

  3. Yup. We also have found that we don’t qualify for any of the above.

    Prices are rising, though. I’m hoping the house will appraise for something close to what we owe on it. Our rate is already pretty low, but maybe we can wangle a new loan at these miraculous lower rates.

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