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Should You Refinance - or Refinance Again?

Are you kicking yourself because you haven't taken advantage of low interest rates to refinance or buy a new home? Relax - you've still got plenty of time. On September 13th, the Federal Reserve announced a third round of "qualitative easing", known as QE3, to stimulate the economy. Among other plans, the Federal Reserve will keep the Federal Funds rate (the rate at which banks lend balances held at the Federal Reserve with each other) at or near zero at least through mid-2015.

Here's the thinking: Lower rates will stimulate more home buying. Increased housing demand will increase home prices. Higher home prices will increase existing home equity and result in fewer homeowners who are underwater, meaning that they owe more than their home is worth. More homeowners will then be able to qualify to refinance their existing mortgages at lower rates. After they refinance, they will have more disposable income and be able to spend more, which will lead to healthier businesses in a position to add more employees.

The next couple of years offer an unprecedented opportunity to refinance at historically low rates. If you have recently refinanced, should you do it again? If you haven't refinanced in the past few years, should you do it now? Here's what to consider:

Can you refinance to a shorter term?
If you are refinancing to the same term loan that you currently have, your monthly payments may be lower but you are extending the life of the loan. The best way to save significant money is to refinance to a shorter term loan, such as a 20-, 15- or even 10-year fixed rate. A lower rate may make a shorter term loan possible.

What are the prepayment penalties on your current loan?
You'll need to calculate prepayment penalties into your break even calculations (see below). Penalties vary, so be sure to check the terms of your loan or contact your loan officer.

How large is your mortgage?
If you have a large loan and large monthly payments, even a small drop in interest rates saves significant money. The smaller the mortgage, the less you are paying in interest and the larger the interest rate cut required to justify refinancing.

What is the break even point?
All other considerations lead up to this - when will you really start saving money on a new mortgage, and will you still be living in the house at this point? To calculate the break even point, you divide the fees associated with refinancing your mortgage by the monthly savings that you will realize. For example, if your closing costs are $3,000 and you save $100 per month by refinancing, your break even point is in 30 months. It wouldn't make sense to refinance if you plan to move before then.

Even if you refinanced with the past couple of years, you may come out ahead if you refinance again. We're here to help you evaluate all your options and calculate your break even point. Give me a call at 617-965-1236 or email me for help.

September's Home Value Improver

Fall Home Maintenance Essentials

It's hard to think about howling winter winds during these gorgeous September days, but now is the time to plan ahead. Here are five essential steps every homeowner should take to get ready for winter:

  1. Tune up the furnace - Annual tune ups by a professional will help your heating system operate at maximum efficiency and prevent malfunctions.
  2. Inspect and clean chimneys - A chimney sweep will inspect your chimneys for blockages or damage and clean creosote deposits to prevent chimney fires. Inspect your chimneys annually. Wood stoves should be cleaned every year, while open fireplaces can probably go every two or three years, depending upon the amount of wood that you burn.
  3. Plug gaps and add weatherstripping - Don't pay to heat the outdoors! Seal gaps where cold air comes in and warm air goes out. Pay particular attention to areas around windows, pipes and vents.
  4. Go on rodent patrol - Mice and squirrels love to sneak into a cozy house in the winter. Survey your house for entry points (a mouse can get through a space slightly smaller than a dime) and plug holes and/or screen vents as needed.
  5. Clean Dryer Vents - There are more fires caused by clothes dryers in winter than in any other season. Take time now to remove the vent cover on the outside of your house and vacuum lint and debris from the dryer exhaust tubing. From the inside, pull lint and build-up from both the back of the dryer and the exhaust tubing that attaches to it.

Westchester Mortgage

September 2012

September always feels like a fresh start. I'm energized and ready to tackle all kinds of projects that I have been putting off - like cleaning the dryer vents and weatherizing my home. In this issue of the newsletter, we present a quick checklist of pre-winter home maintenance tasks that we should all be doing now.

If refinancing or buying a new home is on your "To Do" list, the Federal Reserve just delivered some really good news for you. Even if you refinanced within the past year or so, you may want to think about refinancing again. Find out more in this month's feature article. As always, please give me a call if I can answer any questions!

Best regards,
Debbie Siegel
Westchester Mortgage

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