It’s Hard to Refinance a Mortgage These Days
A lot of people are trying to refinance their home loans these days to take advantage of lower interest rates, or perhaps to escape the uncertainty of the adjustable rate mortgage loan they currently have.
But many of these same people are also coming to an unfortunate conclusion — it’s hard to refinance a mortgage loan in the current economy.
There are several reasons for this:
3 Reasons Why Refinancing is Hard Right Now
For one thing, there are fewer banks will to loan anything right now. We have seen some major financial institutions collapse over the last few weeks, and hundreds more are on shaky ground. So banks are being very conservative right now, and it makes it hard for people trying to refinance a home with a new loan.
Another challenge for homeowners is that lending standards have gone up. You need a better credit score these days to qualify for a loan, and to get a decent interest rate on that loan. Just a couple of years ago, in 2006, you could qualify for the best interest rates with a credit score of 620 or above (in most cases). Today, you’ll need a score over 750 to qualify for those same rates. And since the point of refinancing is to get a lower rate and save money over the life of the new loan, this is yet another reason why it’s hard to refinance a mortgage right now. You can learn how to improve your credit from this article on our parent website.
Sorry to hit you with a “three-pack” of bad news, but there’s one more issue causing problems for homeowners who are trying refinance. Home values have dropped in most areas of the country, and in some places significantly. If my current mortgage balance is $350,000, but my home’s value has dropped to $280,000, I’m not going to be able to refinance the loan. You cannot replace a bigger loan with a smaller one. So this is the third major reason why it’s hard to refinance a mortgage in the current economy.
Of course, there are some rays of light in all of this doom and gloom. The FHA has a new refinancing program that will continue until 2011. It allows people in certain situations to refinance into a 30-year fixed-rate mortgage with a more affordable rate than their current one. But this program is reserved for “at-risk” homeowners who could otherwise face foreclosure.
What Can You Do?
In many cases, there isn’t a lot homeowners can do about this situation. Everyone is hurting right now. If your credit score is not up to snuff, that’s one thing you have control over. So in the meantime, you could focus on improving your credit score so you will qualify for the best rates when you refinance later on. If you have a property value issue like the one mentioned above, you’ll have to wait (and hope) for it to come back up before refinancing becomes an option.