Finance Focus

Despite the slow housing market, record-low interest rates are driving brisk business at banks and mortgage loan offices around town. Cornerstone Mortgage senior loan officer Jack Buck Jr. shares that over the past month, his office has seen $100 million worth of new loans, a majority of them refinances. “Refinancing is a great option for a lot of people,” he says.

    Buck advises many of his clients to take the extra savings and apply it to the principal to make the loan period shorter. “They’re saving hundreds of dollars by turning a 30-year loan into a 25-year loan. Maybe you have 30 years of loan to start, and you’re four years into it. If you refinance and end up saving $100 a month, keep paying the $100, catch up with the four years and shorten the term of the loan,” he explains.

    Even homeowners who have recently refinanced may quality for a better deal, according to Buck. “I’ve refinanced clients who went through refinancing six months ago,” he says. “For some people, it’s better to refinance sooner if there’s a better deal.”  Buck notes, though, that a number of homeowners may not benefit from refinancing at all. “I recently advised a woman who’s been in a loan for 11 years against it,” he says. “You need to look at the amortization schedule and principal payment, or if you’re not planning to be in the home long enough to reap the benefits. It also depends on the size of the loan: If the loan is $130,000 or less, you have to compare the present rate to the new rate to see if it’s reasonable.”

    Another important consideration that could dictate whether it’s the right time to refinance is your credit score. Bruce Cannon, VP of residential lending at Midland States Bank, says a score of 680 and above will likely get you approved for refinancing and yield the best rates. Still, he advises seeking consumer-friendly agreements from reputable lenders. “They’ve tightened up credit scores so much that you may not qualify today for the home you live in!”

    The bottom line, Cannon says, is to make sure refinancing is right for your circumstances. “Talk to a professional mortgage counselor and look at the cost of refinancing,” he suggests. “How many years will you be in the home? How long do you want to pay 10, 15 or 30 years? If you’re in your 50s, when do you want to retire? Figure out whether you’re going to save enough money to make it make sense.” Take for instance a $200,000 mortgage, Cannon says. “If your mortgage is $200,000 or higher, a one percent savings is $2,000. The bigger your balance, the more attractive an interest rate savings will be.”