Refinance with Minimal Hassle

With foreclosures on the rise, many homeowners are hoping to refinance their home loans before their adjustable interest rates skyrocket. Recent stable or falling home mortgage interest rates could offer a financial haven for these types of owners, although the falling average rate probably won’t help those who purchased a home recently, such as within the past year or two, according to a recent article from Realty Times. “The problem is a lot of people in those products don’t have any equity in the house and lenders want equity to refinance,” explains Glenda Queensbury, a mortgage advisor and real estate agent with Referral Realty in San Jose, California.

There may still be some options, however, for homeowners looking to get out of their adjustable rate mortgages (ARMs) before the rates reset. The key, the experts say, is looking at your options early. “When people start feeling the pinch, don’t wait until you are delinquent,” says William Higgins, chief lending officer of online bank, Ing Direct. “The more delinquent you become, the more options that will start going off the table.”

Higgins recommends visiting your existing lender first if you are interested in refinancing. This is especially true if your lender doesn’t sell loans and has an interest in keeping its existing loans intact. You also shouldn’t overlook other banks, credit unions and lenders that retain loans.

Higgins says that, generally, in-house lenders are easier to work with in terms of refinance options, including loan modifications that can help homeowners retain their existing loans and avoid trouble. Queensbury adds that in-house lenders also have the option of balancing more lenient underwriting standards for higher interest rates, which can give borrowers more flexibility in refinancing. For example, trading an ARM for a fixed rate that is higher now isn’t a bad idea if the ARM rate will eventually be unaffordable. You can also look at longer-term mortgages that can help offset the cost of trading an ARM for a fixed-rate loan.

You will have the most options for refinancing if you have both equity in your home and spotless credit. “If you have the equity, your credit must be pristine with no blemishes,” says Queensbury. “If your credit is just basis or mediocre, you are not going to get a better rate.”

Another option is to trade one ARM for another, but only as long as the new ARM is a hybrid that gives you enough breathing room. “The customer needs to figure out how long they will be in the house or how long before they expect to borrow money again,” says Higgins. “A 3/1 hybrid is a hard bet. I’d see five years as short as you want to go right now.” Queensbury adds that it is really only advisable to trade one ARM for another if a 30-year-loan is unaffordable. Instead, “consider a 10-year interest-only payment or try to get at least a five-year,” she says.

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