If you're like many other homeowners, you might have at least two compelling reasons to refinance your mortgage: To lower your interest rate and to slash your monthly payment. But despite those benefits, you still might not be in a position to refinance.
Mortgage specialist Joe Metzler at Mortgages Unlimited in St. Paul, Minn., says he gets calls every day from people who are convinced they can refinance, but turn out to be misinformed about loan programs or overconfident about their ability to qualify for a new loan. He tells them "the big bold lettering looks awesome, but the details are in the small print."
In other cases, you may qualify for a refinance, but still decide not to do so.
Sandy Magura, 32, says she and her husband Josh, 31, could refinance, but have decided to stick with their current loan, which has a 30-year term, fixed rate in the 6-percent range and a balance of about $135,000.
"I get letters every day about refinancing," Magura says, "and every time I go to the bank, they confront me about refinancing, but I tell them 'no.' If I was interested, I would approach them."
To Magura, the stumbling block is that the monthly savings, which she estimates would be "a couple hundred dollars," wouldn't justify the cost, which she figures would be about $3,000. The math doesn't work because her husband, a recent college graduate, is "applying for jobs all over the place" and they intend to move as soon as he lands a position.
"We're planning on putting the house up for sale, so we would not get back the money it would cost us to refinance," she says.
The couple bought their home in 2008, paying $185,000 and making what Magura characterizes as a "hefty" down payment. The 1,400-square-foot residence, in Staunton, Va., has three bedrooms, two bathrooms and a two-car garage, is on a three-quarters-of-an-acre lot and was built in 2006.
Magura says she and her husband have "excellent" credit and no trouble making their monthly $1,030 payment, although their income isn't exactly W-2 material. She's a part-time self-employed virtual assistant. He receives military disability benefits.
"If there were no fees, no closing costs, I might consider refinancing," Magura says. "But then again, with the whole income thing, I don't know whether we'd get a loan, and all the paperwork would be a waste of time for me."
Metzler says cost can indeed be a sticking point. That's why it's important to do what he calls the "short-term math" and "long-term math," taking into consideration how long you plan to keep your mortgage. The sooner you intend to move on, the less a refinance will make sense.
Ginny Cain, a 50-year-old marketing communications professional, also says she could refinance, but her anticipated monthly savings of $125 or $130 off a $780 payment doesn't provide an adequate inducement.
"It doesn't look like enough for me to go through all the paperwork, spend time with a loan officer, write letters about a second property I own with my ex-husband," she says. "None of that seems worth it to me. I'm thinking, 'no, forget that.'"
Mortgage calculator: Tri-Refi Refinance Calculator
One challenge, Cain explains, is that she has ownership interests in rental and vacation homes in Arizona as well as her primary residence, a 940-square-foot, two-bedroom condo in Pleasanton, Calif. She believes her income would be sufficient to support all three mortgage payments, but she doesn't want to go through the hassle of writing letters to explain her situation.
"It's a laborious process," she says. "I don't want to have to justify everything for $120 a month."
Equity wouldn't be a problem, Cain adds. She paid $195,000 for the condo with a $50,000 down payment in March 2011 and estimates the property is now worth $210,000. Her current loan has a 30-year term, fixed rate of 4.75 percent and a balance of approximately $145,000.
Metzler says Cain's not alone in her attitude, which amounts to a shoulder shrug and query of "why bother?"
"A lot of people call me, we crunch the numbers and it doesn't have a lot of value for them," Metzler says.
But Metzler also has a comeback: multiply those small monthly savings over a couple of decades and refinancing might look a lot more attractive.
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