With rates for mortgages still dipping into historically low territory, many homeowners are wondering if the time is right for a refinance. Refinancing to a lower rate could potentially save thousands of dollars in interest, shorten the time left on a loan or both. How do you know when a refinance is worth the work?

If you’re considering refinancing, ask yourself the following:

• Do you owe more than the house is worth? If what you owe on your home (including any home equity loans or lines of credit) is more than 105% of the home’s value, you may qualify for the federal Home Affordable Refinance Program (HARP) or the Home Affordable Modification Program (HAMP).  If you feel you may be eligible for HARP or HAMP, contact your mortgage servicer for assistance.
• Will you save at least one point on the Annual Percentage Rate (APR)? If your current mortgage rate is 6.25% APR, a rate of 5.25% APR or lower may well save you some money.
• What will your closing costs be? Shop around for a lender with low closing costs—you don’t want to have the savings from your reduced monthly payment eaten up by fees.
• Will you be extending the terms of your loan? If you’re 10 years from paying off your mortgage, then refinancing out another 30 years may not make sense for you. Of course, you can always make additional principle payments. Check that your lender has no prepayment penalty.
• Can you shorten the term of your loan? Perhaps, with a reduced interest rate, you can shift from a 30-year mortgage to a 15-year and save yourself some interest.
• Is your credit score ready? If you believe a refi is in your future, be sure you qualify for the best rate possible by checking and cleaning up your credit histories (you can get these free at annualcreditreport.com).

If you think this might be the right time to refinance, the Personal Finance Representatives at Group Health Credit Union have worksheets and calculators to help you know for sure. Visit one of our branches to get started. But don’t delay! Most financial experts predict a sharp rise in mortgage interest rates in time for the high demands of spring and summer.

Filed under: Ask GHCU, Financial News and You, Money management tips by Shannon