The personal finance topic I've chosen for you today (re-financing) is a little personal, and I have to tell you that I'm approaching it with some chagrin.  I am compelled to inform you also, relevant to this topic, that the particular size of shoe that I wear is, well... unusual.  Over the years I've been given more than a little flack for the size of my feet, and it has been said that they perform substantially well for someone of my particular height.  They have been called many things, including ample, and this condition renders my personal style choices subject to, uh... certain practicalities that most guys would envy.  Unfortunately for me it only means that my cobbler has the upper hand.  This type o' thing can be really inconvenient.  And so I come to you urging you with all humility that, as the saying goes, if the shoe fits, by all means wear it.

Although your personal style is certainly relevant to the topic of personal finance, today I'd like to talk about your mortgage.  The question is put, most aptly in these nebulous economic times, as to whether it is appropriate or even advantageous to re-finance your mortgage.  This is a question not unfamiliar to many homeowners when they're considering re-financing their mortgage. Unfortunately, similar to the question, "What size shoe do you wear, Jack?" the answer to this question about re-financing is a rather complex one and the answer ain't always the same. I can't put it any plainer than that.  There are some standard situations where a homeowner might investigate the possibility of re-financing, such as when interest rates drop, when the homeowner’s credit score improves or when the homeowner has a significant change in their financial situation. While a re-finance may not necessarily be warranted in all of these situations, it is certainly worth at least an investigation.  Similarly, if the shoe fits, wear it.

Drops in the Interest Rate

Drops in interest rates often send homeowners scrambling to re-finance. However the homeowner should carefully consider the rate drop before making the decision to re-finance. It's important to consider that as a homeowner you'll pay closing costs each time you re-finance. These closings costs may include application fees, origination fees, appraisal fees and a variety of other costs and may add up quite quickly. Each homeowner should carefully evaluate their financial situation to determine whether or not the re-financing will be worthwhile. These fees can become unmanageable or simply out of proportion pretty quickly.  In general the closing fees shouldn't be more than the overall savings, and the amount of time you need to retain the property to recoup these costs shouldn't be longer than the time you plan to hold onto the p roperty.  No sense in being confined by something that doesn't suit your lifestyle or your finacial plans.

Credit Score Improvements

When your credit scores improve, considering re-financing is warranted. Lenders are in the business of making money, and they're more likely to offer favorable rates to you if you have good credit than they are to offer these rates if you have lousy credit. As a result folks with poor credit are likely to be offered terms such as high interest rates or adjustable rate mortgages. If you find you're dealing with these circumstances, you may want to investigate re-financing as your credit improves. The good thing about credit scores is mistakes and blemishes are eventually erased from the record. As a result, if you make an honest effort to repair your credit by making payments timely, you'll soon find yourself in a position of improved credit in the not-so-distant future. 

When your credit scores are higher, lenders are willing to offer lower interest rates. For this reason you should consider the option or re-financing when your credit score begins to show marked improvement. During this process you can determine whether or not re-financing under these conditions is worthwhile.

Changed Financial Situations

As a homeowner, you should also consider re-financing when there is a considerable change in your financial situation. This may include a large raise as well as a downward trend due to the loss of a job or a change in careers. In either case, re-financing may be a viable solution.  In fact, I'll go out on a limb here.  I submit to you that if you have gobs of money in the bank, you will be hard put to keep re-finance offers out of your mailbox.  Lenders can smell money like a shark smells chum.  It's all but gruesome, I kid you not.  No matter what your credit looks like, if you're sitting on a cushion of green, those pre-approved credit card offers will stuff your mailbox like a cheap Santa suit in November.  Having money is somehow a public event - no matter how you try to dress it down, your lending community is going to know... magically, mysteriously.  Re-financing your house is not likely to be a problem if you're sitting on a wad of cash.

As a homeowner, if you're suddenly making significantly more money you might consider re-financing to pay off your debts earlier. Conversely, if you find yourself unable to fulfill your monthly financial obligations you might turn to re-financing as a way of extending the debt which will lower your monthly payments. This may result in paying more money in the long run because you are stretching your debt over a longer pay period.  However it might be necessary in times of need. In these cases a lower monthly payment may be worth paying more in the long run.  And you can use any funds leftover to fit yourself into a new pair of Hush Puppies.  Hey, there are worse things to spend your money on.

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Until next time,

JS
Spokesman

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