Question: Which is better to refinance mortgage when value of house if lower or higher?

(Posted by: arnoldporche on 2009-11-05 21:41:14)

We are currently on a 5.5 % Fixed rate on our Mortgage. We purchased our house last year for 195, 000. I believe the worth of our house is around 150, 000. Some people tell me it's better to refinance it when the value of the house is lower than your purchase price. Some people told me it's better to refinance when the value of the house goes higher, so you can get money in your pocket for the difference. I still do not understand which is right. Of course, we also want to get a lower rate, but my main question is when? When House value is lower or higher? Please help me understand. Thanks!

Posted by: Carol on 2009-11-08, 15:56:44

You only mentioned what you "purchased " the home for. But you didn't say what you "owe " on the loan. That's the material question that will dictate if you can refinance at all. If you want to refinance, your home must be worth more than you "owe " on the current loan, actually quite a bit more - if you want to get a new conventional loan. But as already stated here, if your rate is 5.50% fixed, I can't see you refinancing at all as of today. There would be no benefit to you. There is no need to get bogged down with "home value lower or higher. " It's a moot point and there are no rules that fit everybody when it comes to personal finances and mortgages. People should refinance when the transaction makes sense for them. I am not familiar with that piece of advice - "better to refinance it when the value of the house is lower than your purchase price. " Never heard that before. Fact is, if the value is too low, you won't be able to refinance anyhow. Good luck.

Posted by: Lady Real on 2009-11-05, 22:29:16

It depends on what you need. It doesn't make sense to refinance a house for less than what you bought it for unless your original loan is an adjustable rate mortgage or interest only loan, which it is not. A fixed 5.5% rate is a good one to keep. Besides, you can not refinance a home for less than what you owe on it. The bank will not refinance a home for more than what the market value is. It would be a huge loss and wouldn't make financial sense for the bank. On the other hand. People who's homes have gone up in value, might want to refinance for a higher price and take the extra money out as cash. For example: If you buy a home for $195,000 and five years later you've paid down your home by $10,000 and you now owe $185,000. But, your home now has a market value of $215,000. You can refinance your home for $215,000 and you can pocket $30,000. So, unless you owe less than $150,000 on your home, you can't refinance.

Posted by: Beverly S on 2009-11-06, 07:10:46

If you owe more than the value of the home you can't refinance it anyway. I doubt it would be worth it with a 5.5% rate anyway- rates are around 5.25% today unless you buy down. Probably wouldn't save you enough to make it worth while with closing costs being added to loan.

Posted by: Arbor Mortgage on 2009-11-06, 11:21:34

If you owe less than the value of your home, refinances are very difficult. There are very few programs to allow you to do that and the interest rates tend to be a little bit higher on them. Since you have such a good rate now, I wouldn't worry about it at all. You are in a great position with your current rate.

Posted by: Leo F on 2009-11-09, 09:06:41

Not sure why anyone would tell you, you can refi if the value of your home is less than you paid for it or owe. Unless you owe less than the current appraised value, you can't refi. End of story. The people that told you, you can are idiots.

Posted by: daeve930 on 2009-11-09, 12:34:15

I don't know why it would be better to refinance when the value is less than the purchase price. I can't think of a single reason to do it for that reason. You can get cash out if the value is higher (and a lot of other ifs fall into place too) but if you don't need the cash, you shouldn't get it. If you think you should refinance to get a rate that's better then 5.5%, you may not be able to find one much lower. If you bought the house for $195k a year ago, and the value is $45k less, your loan to value ratio is higher, which may make your rate go up. Then you have to factor in the cost of refinancing, maybe $2,000? I wouldn't expect there would be any cash to take out at this point. The time to refinance is when you can get a lower rate, or when you must have some cash out. The loan to value ratio should be under 80% to avoid mortgage insurance.

Posted by: Nash P on 2009-11-09, 15:20:20

The first thing you should do is never take mortgage advice from someone who is not a mortgage consultant who understands what programs are available TODAY. There are programs that let you refinance when up to 125% upside down on your home called the making home affordable plan. However, going over 100% does have pricing add ons and with you being in a 5.5% I wouldnt advise it. Do yourself a favor, when you have a question about the largest asset you own, call your bank and get advice from someone who does this for a living. Everyone has an opinion and 90% of the people on this site have no idea what they're talking about

Posted by: Erik on 2009-11-09, 20:51:37

I am a realtor & a loss mitigation expert here in southern, ca. First you have to qualify for a refinance, in order to qualify for a refinance you typically have to have about 80% LTV (Loan-to-Value) so if your home was worth 100,000 - you would have to owe 80,000 or less! FHA offers financing up to 105% LTV however you will experience MI (Mortgage Insurance) which means more fee's. Right now the rates are great, I just locked in a 30yr/ Fixed at 4.75%. They are talking about raising rates after January 1, 2009 so if you're looking to refinance, the time might be now. You must look at the closing costs vs the savings of the lifetime of the loan and consider it being worth refinancing. It sounds like you owe more than the home is worth, if so and you are experiencing a hardship - you might want to look into loan modification. This has a whole new set of requirements as well. If you're curious, e-mail me i'll see if I can help. turboe@cox.net