Mortgage rates are way down again - and refinancing is up. If you missed out on last year's ultra-low rates, are your chances any better of refinancing this time around?
By some accounts, refis are harder to get now than they were last year. Lenders are taking a closer look at borrower's finances and new rules on appraisals have many loan officers throwing up their hands in despair.
At the same time, some of the major obstacles that prevented homeowners from refinancing in the spring of 2009 are significantly diminished. That's particularly true for homeowners with second mortgages, which lenders are far more willing to resubordinate when refinancing a primary loan than they were last year.
That's good news for homeowners who may be underwater on their combined mortgages, but still have enough equity in their home to cover the primary mortgage by itself.
Second liens less of a problem
"We've done a lot of that with seconds, the bank agrees to subordinate and it goes right through," said Russell Franchi, owner of Midtown Financial Services, a lender/broker in Northville, Mich.
Last year, many of these borrowers had a hard time refinancing because the second lien holders refused to resubordinate their loan; that is, agree to allow the refinanced loan to be paid first in the event of a default. Now, second lien holders seem to be concluding that allowing the primary loan to refinance to a lower rate reduces the likelihood of a default on the second lien as well.
Sean Flemming, a manager with Van Dyk Mortgage Mortgage, a national lender and broker based in Grand Rapids, Mich., said he sees very few problems with resubordinating second mortgages these days.
"As long as the rate is better than current and (the borrower's) not putting any money in their pocket, they're willing to resubordinate," he said.
Higher loan-to-value allowed
Stabilizing property values also make it easier to refinance, because fewer areas are labeled as declining markets, where lenders demand lower loan-to-value ratios. In an area labeled a declining market, Fleming said, lenders may only allow up to an 85 percent loan-to-value ratio, versus 90 percent in a stable market.
For some, that 5 percent can mean the difference between qualifying and not qualify for a refinance, or at least not having to put up thousands of dollars down at closing to increase their equity stake.
Last year, Fleming said he routinely had to consult an overlay map of counties labeled as declining markets when making loans. These days, he rarely uses it, because few areas nationally are still considered declining.
"In general, I don't have to worry about where the county is," he said.
An option for underwater borrowers
Another refinancing opportunity that wasn't around the first time rates hit rock bottom is the government's Making Home Affordable 125 percent refinance program. The program allows you to take out a new loan for up to 25 percent more than the current value of your home, although only for refinancing an underwater mortgage - you can't take any cash out of the transaction.
In its original form, the program only allowed refinancing at up to 105 percent of the current home value - not much help if you're underwater on your mortgage. But last fall, the rules were changed to raise the limit up to 125 percent loan-to-value ratio - meaning homeowners who are moderately underwater can still qualify.
There are a few catches, though. First, in order to qualify, your mortgage has to be held by Fannie Mae or Freddie Mac. That's easy to verify; both companies offer tools on their web sites that allow you to instantly find out if they hold your mortgage.
Second, the fees and interest on a 125 percent loan are considerably higher than on an 80 percent loan-to-value mortgage. Franchi said you might pay an additional one-half to three-quarters of a percent in interest, as well as the equivalent of two discount points up front (each one-tenth of one percent of the loan amount).
"They're so overly sensitive to the risk profiles, they're charging you an arm and a leg to do it," he said.
Those higher interest rates and fees could wipe out much of the savings you'd hoped to realize by refinancing. However, if you have an ARM that's about to reset to a higher rate or has a balloon payment due, or if you're still paying 6-7 percent on a conventional loan, you might still find it worthwhile.
The program is known as Relief Refinance for Freddie Mac mortgages, and RefiPlus for Fannie Mae loans. Both are under the umbrella of the Home Affordable Refinance Program of Making Home Affordable.
In the current financial environment, it can still be difficult to refinance a mortgage. You're going to need good credit and have at least some equity in the home and not be too far underwater on your mortgage. But there are some factors that are turning in borrowers' favor - and with interest rates near all-time lows, now's the time to take advantage of them.