Refinance vs. New Purchase

Refinance vs. New Purchase
by Jeff Lichtenstein
2001 President, Columbus Mortgage Bankers Association
Executive Vice President, Market Mortgage Co., Ltd. in Worthington

   It is all over the news and in the business sections of newspapers throughout the county “interest rates on mortgages have not been this low since 1962”. With this news, your first thought might be “let's refinance and save some money”. And, if you are like most folks, your next thought is “should I do it now or wait a few weeks to see if rates go lower and save more money?”
This is when you seek the advice of the loan originator that arranged the loan when you bought the house. If you can't seem to remember, call your Realtor® for the number or for another referral.

   In weighing your options, consider ‘moving up' instead of refinancing. This is how you can take full advantage of the market by increasing your buying power based on low mortgage interest rates.

   For example, if you financed $110,000 mortgage at 8.25% for 30 years, and you are comfortable with your payment, you could probably afford a home worth over $130,000 for the same approximate monthly payment. Moving up to a $150,000 mortgage would merely increase your current principle and interest payment by about $125 per month. There's been an increase in the number of homes put on the market for this time of year so you might want to contact your Realtor® and inquire about the process of selling your current home and the purchase of a new home. The phone number of your loan originator now becomes even more important.

   If you're comfortable in your current home and your priority is lowering your monthly payment and/or saving money, you should consider refinancing to either a new 30-year or 15-year loan. A 30-year refinance at 6.5% will save you about $130 per month and a 15-year loan will increase your payment about $115 per month but save you thousands in interest over the shorter term.

   At Market Mortgage Co., Ltd our prudent loan officers will always ask the question “How long do you plan to live in the house?” before recommending a refinance program. The answer to this question is almost always “ I don't know” but it is an important question and worthy of discussion. If your answer is “forever”, then a 15- or 30-year fixed rate mortgage is usually best. If your answer is “about 5 years”, you might consider the 7-year balloon product. If your answer is “probably not long”, your next call should be to your Realtor®. Now is the best time to take full advantage of the low interest rate market and weigh the advantages of refinance vs. purchase.