Dec 17, 2008 9:18 pm US/Mountain
Expert Has Advice For Refinancing Home After Cut
FORT COLLINS, Colo. (CBS4) ―
Rates for mortgages and other types of credit could drop in the wake of of Tuesday's interest rate cut from the Federal Reserve. Some lenders are already offering rates below 5 percent, but there are some things to keep in mind when seeing those attractive rates.
Mortgage lenders like Rhonda Croft from Western States Bank say they are getting lots of calls about whether it's a good time to refinance for a lower house payment. She says even if refinancing a home makes sense, the credit squeeze means there are more hurdles to jump.
"Now it's not only what your credit score is, but it's what your loan-to-value is, in other words the percentage of the value of your home you're borrowing," Croft said. "If you're taking any cash out, or if you're just redoing your mortgage. And also they are looking at factors depending on where the property is."
But Croft says when some people are trying to take advantage of these great low rates, they are running into an unpleasant economic surprise because housing values have dropped. Houses are worth less, so when they go to get the new loan they find that they don't have enough equity in the house to qualify.
"Values are changing and a lot of it is due to the foreclosures," Croft said. "If banks are trying to unload properties at a discounted rate, then obviously when an appraisal is done on your house, then it affects your value because of that."
Croft says a lower rate can free up some cash a homeowner was paying for the house, just make sure it actually makes sense in the personal situation the homeowner is in.
"If you know that you're going to sell your house in the next year to year and a half, it's probably not worth it to pay the fees even though you're getting a lower rate -- you won't recoup that."
Financial professionals say it will take a little time to see the real effect of Tuesday's Fed rate cut on the mortgage market.
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