Q: My husband and I have a relatively small mortgage, albeit at 9 percent interest, but we are the only couple in our neighborhood who are not upside down in our home. I'm not pleased with the interest rate, given what I see in the papers about current mortgage rates. My neighbors have said that it's impossible to refinance but I'm not sure if that might make sense for us. Should we?
A: You are indeed lucky, although probably simply wise. Thousands of home owners are suffering the the effects of the economy on the value of their homes. Refinancing is usually out of the question for them because they owe more than their homes are worth.
The answer to your question isn't simple. In order to refinance a mortgage, you and your husband must literally replace your existing mortgage with a new one. You will have to apply for a loan. Your home will be appraised, credit checked, income verified, etc. There will probably be points to pay and there will certainly be fees and closing costs.
On the other hand, you may save thousands of dollars in interest expense if the new mortgage is at a significantly lower interest rate. In addition to the benefit of lower interest rate and perhaps a smaller monthly payment, you could also benefit if your current mortgage has an adjustable rate and might actually become more expensive in the future.
You might also have the option of paying the same amount as you do now even though that payment is higher than that required for the new mortgage. This would pay off your mortgage sooner and save you even more.
The answer to the question really depends upon the net savings. To determine this, calculate the true interest cost of your existing mortgage over the time you intend to live in your home and compare the cost to the total costs incurred in refinancing plus the interest expense of the new mortgage over the same period of time.
There are sophisticated techniques to arrive at the value of the money you pay over time by bringing these payments back to today's present value of money. This is termed "net present value" but using the NPV technique is probably not critical in determining if refinancing makes sense. Calculate actual dollars spent should provide sufficient information to help you make an informed decision.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.