Transcripts

"Money File"-Look Before You Leap Into Refinancing

PAUL KANGAS: In the "Money File" tonight, mortgage rates are looking more attractive, but there are some things to consider before you refinance. Here's personal finance journalist Terri Cullen.

TERRI CULLEN, PERSONAL FINANCE JOURNALIST: Some market watchers are speculating that this week the average 30-year mortgage rate will drop below 5 percent, the lowest rate in the last 50 years on an average long- term fixed-rate mortgage. With mortgage rates near historic lows, many homeowners are wondering if now's the right time to refinance. For people with mortgage rates currently at 6 percent or more, the answer may very well be yes. But because of the costs involved, refinancing doesn't make sense for everyone. Who shouldn't refinance right now? Homeowners who are planning to move in the next three years or so should probably stay put in their current mortgage. Refinancing fees start at $3,000 in many markets, so if you're planning to sell your home in the near term, it's unlikely you'll recoup those costs before you move, even with the lower monthly payments. Before considering refinancing, also check your credit score. If you've missed a payment or two on your debts recently, you may not qualify for the lowest rates advertised. Did you or a spouse lose a job recently? Lenders are looking much more closely at borrowers' ability to repay their loans, so a recent layoff may make it difficult to refinance into a lower- rate loan. And finally, if you're holding a so-called jumbo adjustable rate mortgage, one with an outstanding balance of $417,000 or more and it's about to reset, it might make sense to hold off on refinancing for now. Rates on popular adjustable rate mortgages are near historic lows, too, so the danger of the rate resetting sharply higher may be less than you think. Contact your lender to weigh your options before you spend the money to refinance. I'm Terri Cullen.