Refi Madness

If you haven't heard about it already, NOW may be the moment to refinance your home. Rates are sliding below 5% for fixed-rate loans up to $625,000 and sit at about 6.5% for loans between $625,000 and $1M. 

If you want to do some 'back of the cocktail napkin math' to see what your new monthly payment would be, just know that the cost of a new loan at 5% is $53.68 per $10K of mortgage. So if you were to refinance your home for $600,000, the monthly cost of the new loan would be $53.68 X 60, or $3,220.80.  The cost of $10,000 at 6.5% is $63.21 per month.

Refinancing may not be for everyone. You'll save money each month by lowering your monthly payment, but it costs money to refinance. Appraisal fees, origination fees, processing fees and title insurance are all additional costs. To determine the break-even point, take your total transaction costs and divide by the amount you'll save each month. For example, if your costs total $5,000, and refinancing will lower your monthly payment by $200, it will take you 25 months before you actually start to pocket the savings. If you plan to sell before you reach the break-even point, you may not want to refinance unless the immediate savings offers financial relief for these unusual economic times.

If you do decide to refinance, you will need to be patient. Lenders are suffering from an onslaught of applicants and are finding themselves short-staffed. Borrowers who attempt to contact their bank through the main phone number are frequently asked to leave a message (then get no call back) or are referred to the bank's website to fill out a mortgage application.

To get the best, most efficient service from a lender on a refi, You should deal directly with a flesh-and-blood, high quality loan professional. Some of them work directly for the major lenders, some of them work for mortgage companies. It doesn't cost extra to use them and they are anxious for your business. Call me or email me and I'll pass on the names of some I like to work with.

Remodeling Reductions

When you refinance, you may want to pull some extra money for renovations and repairs-- National experts say you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. With contractors hungrier for business, you can negotiate better prices and hire better-quality contractors than you could a year or two ago And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further. 

Those who plan on sticking around in their current home for awhile are the best candidates for home remodeling right now. Recouping the cost of your investment, even when it is less expensive, is a riskier proposition than it used to be. These days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak.

Projects with better-than-average returns are usually the un-sexy ones—like window replacement. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment. And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills.

The cost of building materials has also dropped. Lumber, asphalt, and insulation costs have all dropped, so this is also a good time for a roof or driveway replacement, or deck additions.