Is it Wise or Even Possible to Refinance in the Down Market?
It is the best of times - and the worst of times - to refinance your home. Like wondering where your teenage daughter was last night, you need to ask yourself a difficult question. "What's my home worth in this down market?" The answer often creates the "worst of times" situation. The super-heated real estate market of the early 21st century created unrealistic - and unsustainable - housing FMVs (fair market values).
When the international economy turned for the worst, home values surged downward at record speeds. Homeowners, like you, lost thousands of dollars of "paper equity" that was created by the unrealistic increases in property valuations. If you have no interest in selling your home, this doesn't pose a serious problem. However, if you're considering mortgage refinancing, this loss of FMV could be quite troublesome.
If the mortgage financing rules hadn't changed so dramatically, even major losses in FMV would not be too problematic. However, with most non-conforming loans disappearing from the mortgage market, your options to refinance your home have shrunk to only a few choices. There is good news, though. You should enjoy low interest rates and excellent terms when you refinance - if you can refinance.
The problem may come with your FMV versus your outstanding mortgage loan balance. For example, if you were at a reasonable 75% to 80% LTV (loan to value) prior to the down market, you might now have an LTV of 90% to 95% because of the drastically lower home values.The lack of many mortgage refinancing options formerly available could pose problems at LTVs of 90% to 95%. If available, your options will come with a higher interest rate than an 80% LTV refinance.
If your LTV is in the 75% to 85% range based on current FMVs, you should still have low cost options to refinance and lower your monthly payment or even take some cash out of your remaining equity if you need to do so. Before you jump into the mortgage refinancing market, you should get an idea of the FMV of your home today. This exercise will reveal a great deal about your refinance options and the cost and terms you might expect.
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