Real Estate Relates:
RESOLVE TO REFINANCE
By Mary Margaret McEachern
We typically usher in a new year by embarking on ambitious resolutions
— lose those extra pounds, exercise more, spend less time on the phone, or
to spend less. Perhaps debt elimination made your list.
With interest rates expected to remain near historic lows for the fore-seeable
future, this could be the perfect time to wield the most powerful
debt-paring tool available to homeowners — the refinance.
Nationally, long-term mortgage rates have risen slightly but remain
below 4 percent and are relatively stable. Analysts say refinances nearly
doubled in 2019, with homeowners collectively utilizing equity in
amounts not seen in over a decade. Applications for mortgages, including
refinances, rose almost 4 percent in December alone.
Any homeowners considering refinancing should analyze their indi-vidual
circumstances before jumping on this bandwagon. Local mortgage
lending experts say to justify the costs and time involved in a refinance
you should realize a rate improvement of at least .75 percent and remain in
your home for at least three years from the date of the loan.
In addition to lenders’ fees, other considerations include appraisal costs,
attorney fees, the effort involved in securing records, signing paperwork,
and otherwise being available to shepherd the process. Because local prop-erty
values have risen significantly, however, a homeowner could possibly
eliminate mortgage insurance through a refinance.
Interest rates are the most obvious factor in the recent increase in
refinances but other favorable terms taking effect in 2020 could render it
even more attractive. Conforming loan limits are set to increase substan-tially.
In other words, it’s possible to borrow up to $510,400 on a primary
home with a down payment of only 3 percent with a conventional loan.
For FHA loans, the limit is $331,760. Veterans Administration (VA) loans
have eliminated the limit altogether, allowing 100 percent financing. The
incentive doesn’t stop there. Under North Carolina law, fully disabled
veterans are exempt from payment of taxes on the first $45,000 in assessed
Recent loan qualification ratios (debt-to-income ratios) are flexible.
Those with a strong credit score can qualify for a loan with payments of 49
percent of their income for conventional loans, and even higher for FHA
and VA loans.
Credit scores factor heavily into the ultimate interest rate. Lenders
charge higher rates to offset the risk associated with lending to anyone with
questionable credit history. Accordingly, anyone considering refinancing
should ensure their “house is in good order” by reviewing their credit
reports and scores. You must maintain a score of at least 620 to qualify for
a mortgage, but for the best rates strive to maintain a score of at least 740.
With a little time and legwork, homeowners can put their equity to
work, allowing them to realize a resolution that will prove meaningful for
many years and decades to come.