If you purchased your home with an adjustable-rate mortgage and the rate has risen-or will adjust soon-you may be facing payments that are uncomfortable, perhaps even unaffordable. With interest rates on fix-rate loans still near historic lows, refinancing now could be a smart choice, depending on your particular situation.

            Here are some issues to consider:

            1. Does your current loan have a prepayment penalty?

If so, find out how much the penalty would be and when the penalty term expires. (The penalty amount should be added to the costs of refinancing when comparing your current loan with a new one.)

            2. What interest rate are you currently paying, how soon will it adjust, and how much is it likely to adjust?  Even if your current rate is lower than available fixed rates, it may be worth refinancing to a fixed rate now, while rates are low, in order to avoid higher future payments as your adjustable rate increases.

            3. How long do you intend to own the home? The longer you plan on owning, the more likely it is you would save money by refinancing at today’s fixed rates. If, on the other hand, you only intend to keep the home a few more years, you may not be able to recoup the costs of refinancing with the savings you would achieve by having a lower fixed versus adjustable rate.

            4. Do you owe your lender more than your home is worth?

In this situation, often called an “upside down mortgage,” you could pay your current lender cash for the difference between your current mortgage amount and the refinanced loan. You might want to do this if the amount is relatively small and you intend to keep the home long enough for savings from refinancing to recoup the cost.

            Contact your lender to determine whether refinancing could keep your payments low now and in the future.

2008 LOAN LIMITS

Changes In The Works

            As we go to press, Congress is in the process of finalizing an economic stimulus plan that, among other things, would raise the limits on conforming loans and loans insured by the Federal Housing Administration (FHS).

            Conforming loans are those that can be purchased by Fannie Mae and Freddie Mac, the government-backed mortgage buyers. The current conforming-loan limit for single-family homes is $417,000 (except for Alaska, Hawaii, Guam and the U.S. Virgin Islands, for which it is 50% higher). The $417,000 limit may be may be raised to $625,000, possibly even to $730,000 for high-cost areas. (Loans beyond the conforming limit are “jumbo” loans, which normally carry a higher interest rate.)

            Also under discussion is a plan to raise the limits on FHA insured mortgages, currently at $362,790 for high-cost areas (50% higher for Alaska, Hawaii, Guam and the U.S. Virgin Islands.) and at $200,160 for low-cost areas. The $362,790 limit may be increased to $635,100. 

            We’ll let you know what the new limits are in our next newsletter. For immediate information, feel free to give us a call.