Not always dependant upon lower interest rates, refinancing is a good idea under a variety of conditions

If you need to lower your monthly expenses, find some extra cash, or reduce your risk level, it's not a bad time to consider reconfiguring your mortgage.

On March 15, Freddie Mac's weekly mortgage survey put average fixed mortgage rates on conforming 30 years loans at 6.14 percent, the lowest they've been all year. Last year, rates weren't much lower, down to only 6.10 percent for a brief period back in January 2006, according to Freddie Mac.

With rates low enough to help consider refinancing, Matt Coffin, president of LowerMyBills.com, an Experian company, says there are some good reasons to confirm the decision.

"Right now interest rates are low, but even if they weren’t, there may be some people for whom refinancing makes sense," he says.

"The reasons for refinancing can be as diverse as the home owners who use this tactic to help manage their finances," he said.

Coffin said home owners need to first take stock of their financial health and weigh the costs of the current mortgage of the cost to refinance.

Home owners also need an objective, or goal.

"What do you want to get out of your refinance?" is the question, Coffin says.

He offers five reasons for refinancing. With the help of other real estate and housing professionals, we've tossed in one more to come up with Six Degrees of Refinancing.

1. Spend less monthly. If you are stretching to meet your monthly payments on your mortgage, consider a refinancing option that comes with a lower interest rate than your current loan. Determine if the difference is enough to make financial sense to go ahead with the new loan.

2. Lower the interest rate. If you have owned your home for a while -- and you bought it before the interest rates hit rock bottom, perhaps with an expensive second to help with the down payment, options are available to turn a heavy debt into a lighter load.

   "In our growing Utah market, as real estate values continue to rise, many home owners can take advantage of the growing equity in their homes as a tool to refinance high-interest 90-percent to 100-percent second mortgages on their properties into 80 percent or less conventional fixed interest mortgages. This can get homeowners lower payments and lower interest all with one move," said Marcie Hahn, a real estate agent with Williams Realty in Salt Lake City.

3. Extend the term. After many years of living with a high fixed rate mortgage (FRM) or adjustable rate mortgage (ARM) with a 30-year term, refinancing to a new 30-year loan will cost a lot less. That's because you'll be borrowing less than when you first purchased your home. If rates are lower, you'll benefit on the lower payment side even more.

   "My parents were struggling until I refinanced them a few years ago. They were old school. 'Pay off the house and when we get old, no mortgage.' The problem was, they had no money," said Mark K. Hicks, real estate and mortgage broker/owner of Seabrooke Financial in San Jose, CA.

4. Change the terms. That ARM may have been swell when you first signed on the dotted line to get a low "teaser" rate. Perhaps time has run out on that three, five or seven year hybrid loan with a FRM period that's not switching to tougher ARM terms. ARMS, interest-only and other high-leverage loans are great door-opening tools, but when the initial lower rate ends you may also have to do the adjusting.

   "Refinancing to a conventional loan can save you lots of money and uncertainty in the long run," says Coffin.

5. Eliminate other debt. A common reason to refinance is to use equity to take cash out, say to pay off higher interest rate debt and enjoy the tax benefits of switching that debt to your mortgage. The caution here is not to necessarily pay off lower interest debt simply to have one payment. Also you must be disciplined enough not to return to the high interest rate till once the credit cards are paid off. Cut them up and correspond with the credit card issuer to close the accounts to avoid backsliding into high-interest rate debt.

6. Boost returns, diversify. Bruce Hahn, president of American Homeowners Association, says if you have a major share of your net worth tied up in home equity, it could be earning more invested elsewhere.

"It makes sense to borrow the money, using a cash out from the mortgage and investing the proceeds," in stocks, home improvements, a business start up, college education, anything with a sound possibility of creating, in the long run, a decent return on the money, says Hahn, the association president.

Published: March 22, 2007

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.