The right Time to Refinance Real Estate

As a real estate professional, I have a few insights regarding refinancing anytime in the coming year of 2007. Current thirty-year fixed-rate mortgages are still in the range of 6.2 to 6.4, and are expected to remain near that for this year, with little change. However, the typical refinancer will not qualify for that rate due to credit scores. Expect also to add to the refinanced amount roughly five percent for closing costs, origination fees, and prepaid costs.

The first thing you must consider is equity accrual from the time of purchase or last refinance to date. This amount is your GROSS equity, less any closing fees is NET equity for the purposes of this discussion. If your gross equity is less than twenty percent of the market value of your property (determined by professional Commercial Market Analysis) then you are NOT in a good position to refinance. Unless you can drastically lower your interest rate the added costs from closing will result in only a minimal monthly savings. If however your gross equity is above twenty percent you should have a professional valuation and preliminary cost analysis from the mortgage provider, along with a good-faith estimate to verify the refinance will accomplish your goals. If the goal is to gain cash for a project or bill payoff, will the net equity you withdraw cover the costs? Will it ADD to your monthly payment, or lower it as well? These questions must be answered before you can proceed.

The second thing you must consider is location and market volatility. There is no real estate bubble in this country at this time, but there ARE areas that will reverse gains in market value soon. California, Florida, and much of the North East, along with niche markets like Las Vegas have inflated beyond a realistic market value. If you bought in one of these areas in the last decade, chances are that your property will one day become worth LESS than what you originally financed. In that case, you must not refinance because your equity is actually declining instead of gaining. Markets are variable and you should get a local market professional to do a CMA on your property to determine if you are in one of the market-price re-adjustment areas.

And most important, be very careful of mortgage brokerages that are NOT affiliated with a major banking institution. They are typically more expensive, although the credit requirements are lower. The products they offer are rarely a ‘good deal’ for consumers, although they sound great on the face of it. Stay away from ANY Adjustable Rate Mortgage product regardless of who is offering it. They have lower fees up front, but your payment fluctuates with the Fed rate, and many have balloon payments, time-outs, prepayment penalties and other inconvenient and hidden catches. The number one type of loan going to foreclosure today is the ARM. It’s a sucker-bait to get people into a home at the upper limit of their ability to afford, and the slightest emergency can send them spiraling into foreclosure and bankruptcy. And never do an ‘interest-only’ loan or mortgage unless you plan to flip the property in under a year. Good luck, and remember, BUYER BEWARE!