Home Mortgage Refinancing

With the ongoing economic troubles stemming from the housing bubble, interest rates have continued falling recently.  While this recession has made life very difficult for some members, refinancing your mortgage may help you get through these difficult times by lowering the cost of paying off your home.   According to the Census Bureau, there are 24.1 million mortgages (or 31.7% of all mortgages) outstanding with interest rates over 6%.  Of that, 8.1 million mortgages had an interest rate that was above 7%.  That means that many working families are paying more interest than they have to on their homes.   For instance, a 30-year mortgage for $100,000 would require a payment of approximately $665 a month with a 7% interest rate (before taxes and insurance).  However, by dropping the interest rate to 5%, the payment falls by $128 – saving $46,080 over the life of the loan! 

Is Refinancing for Me?

There are a number of things to consider, when thinking about refinancing your home mortgage:

What is my current interest rate, and what rate could I get?

• Everyone’s current rate was mostly determined by when they took the loan out and what the rates were at the time.  If you don’t know what your current rate is, just check your mortgage statement when it arrives this month – it should be shown on the statement or call your mortgage company.
• Today, rates are around (and sometimes below) 5% on a 30-year fixed mortgage.

What are the fees? What are Points?

• While refinancing from a higher interest rate, you have to also consider the fees that you will pay – and weigh that against the savings you’ll achieve.
• Fees do vary.  The AFSCME Advantage program works with Chase to keep fees low for AFSCME members – so you can start by looking here.
• You can also pay a percentage or two (points) to buy a lower interest rate.  By seeking a low-fee/no point deal, you will typically pay a higher rate.  That’s the trade-off.

How long do I have left on my current mortgage, and how long would a new one be?

• Obviously, you’ll want to consider the length of your mortgage.
• You can get a mortgage with a shorter term than 30 years.  If you have already paid down a substantial portion of your mortgage, or if you want to make sure it is paid off sooner (say, before you retire), you can choose a shorter term – and you should be rewarded with a lower interest rate!  You can ask for quotes on what the payment would be under different scenarios to help make this decision.
• You can also typically pay more than your minimum payment without penalty, if you can get a better deal and would like to pay the loan off more quickly.

Can I get a good interest rate?

• Getting the best interest rate is not always possible.  Generally, you will need to have a good credit score and borrow no more than 80% of the value of your home.
• If your credit score is less than perfect or you would like to borrow an amount above 80% of the value of your home, you’ll have to contact a lender and see what is available for you.  Other products do exist for these situations, so it is best to look into it and see what is available.

What if I’m ‘Underwater’?

Lenders will not want to lend you more than the value of your home, in general.  However, they will base their decision on refinancing your home upon the current value of the home and what amount you want to borrow.  Even if your home value has fallen – it may be possible to refinance.

Unfortunately, for those who are trapped in a mortgage where you owe more than your home’s value – it may be very difficult to qualify.  But, the best way to find out is to make a few calls and see what lenders have to say about your personal situation. There currently are government sponsored programs that allow your current mortgage company to lend up to 125% of the homes value if the borrower has good credit and is only refinancing to take advantage of today’s lower rates.

What Type of Mortgage Do You Want?

• Term:  By going with a shorter term (15-years, as opposed to 30-years), you will save a considerable sum of money over the life of the loan.  First, by paying it down faster you’ll pay less interest in total.  You should be offered a lower rate, too.  Just don’t commit to more than you are sure you can handle.  Get quotes, and evaluate your options.
• Fixed-Rate vs. Variable:  Fixed rate mortgages are currently at a very low level.  Historically, variable rate mortgages have always had a lower interest rate than fixed rate mortgages.  However, right now the fixed rate mortgage has a lower interest rate.  If you are still interested in a variable rate, you must be careful if you choose to do so – understanding that a variable rate mortgage is likely to increase in the future (especially, since rates are typically higher than they are today).  If you want to consider a variable rate mortgage, be sure to understand not only what you will pay initially, but also what the maximum payment is that you could face under the loan terms.

How Do I Evaluate All This Information?

You basically want to consider what you are paying now, and compare that to the new payment, plus any fees or points that you would pay. 

Since it typically costs some money up-front – or those costs are loaded onto the terms of the loan (possibly through higher rates) – you should be able to get a break-even point, which will help you evaluate any loan.  This break-even point should include all up-front costs, and determine how long it will take for the savings (through lower payments) to outweigh those up-front costs.  You will be saving money once you reach the break-even point. 

Lenders are also required to provide you with an APR, which includes the interest rate and fees.  This will allow you to compare the true costs of the loan (when interest rates and fees vary between offers). 

As an AFSCME member, if you choose to explore your options with the AFSCME Advantage Mortgage Program, you will have the following additional protections:

• Every loan must pass a net benefit test to make sure loans are in the borrower’s best interest.
• No negative amortizing loans.
• Full disclosure for adjustable rate mortgages.
• Reduced closing costs.
• Mortgage Assistance--an interest free loan to keep your mortgage current in the event of unemployment.

Parents and children of AFSCME members are also eligible.  All members are encouraged to contact Chase for a “mortgage check-up” to make sure that their mortgage is right for them by calling 800 848 6466.

To learn more about all the AFSCME Advantage benefits, please click here.