Austin Texas Real Estate Blog

Since mortgage interest rates have constantly kept themselves at approximately 5% for fixed rate mortgages, the idea of home refinance is attracting numerous homeowners. Refinancing to a lower rate would reduce your monthly mortgage payments. The present day economy and troubled real estate market pose a number of risks to the homeowners.

Home refinance cash

When the real estate market is down, you should always try to refinance your mortgage. If you’re facing problems with your adjustable rate, higher mortgage payments, reduced equity or lower income, then home refinance is a useful means to get rid of your anxieties. When property values are going down and lenders are making stricter guidelines, it becomes more difficult to take out a new loan. Hence, if you get the chance to refinance even in this market condition, you must not lose it by any means.

What is home refinance?

When you go for refinancing, your existing mortgage is substituted by another mortgage with more affordable loan terms. Since you’re taking out a new loan, you normally have to pay the following fees:

• Escrow fees
• Title insurance
• Points (optional)
• Lender fees
• Credit reporting fees
• Appraisal fees
• Any amount necessary to get your tax and insurance obligations current

What the importance of home refinance is in today’s real estate market?

Homeowners resort to refinancing for various reasons, but following are some of the most familiar ones why refinancing is important in the present day real estate market:

Refinancing helps you save money by reducing your interest rate

If the interest rate of your existing mortgage is more than the prevailing market rate, you would save by refinancing.

Refinancing can reduce monthly payments

Even though the interest rates do not go down, home refinance can reduce your monthly payments by beginning a new loan term. For instance, if you obtained a 30-year FRM for $300,000 10 years back, you might just owe around $250,000 at present. However, if you refinance it to another 30-year FRM for $250,000, then you have a complete 30 years to pay it back. It signifies that your monthly payment would be lower. Had you retained your previous loan, you would have paid it off in 20 years. The drawback of reducing your monthly payments is that you would end up paying more on interest.

Refinancing lets you switch loan types

If you have an ARM Adjustable Rate Mortgage, your monthly payment might go up when the rate is adjusted. You might need to shift to a fixed rate mortgage that has a steady payment.

Home refinance helps you receive cash

When you go for a cash-out refinance, you obtain a new mortgage for an amount which is higher than you owe on your existing mortgage. Subsequently, you walk off by taking the difference. A cash-out refinance is quite hard to obtain in recent times though several homeowners opted for cash-out refinancing to fund home improvements in the last one or two years. For getting a cash-out refinance, you should have substantial equity in your home since it is likely the bank wouldn’t lend you an amount which is higher than your home value.

Though most borrowers have a tendency towards keeping their existing mortgages, refinancing in a tough real estate market can better your financial condition in various ways.

Thanks to guest blogger: Peter Gomes!

For the second year in a row, Houston, Texas, ranks second among major US cities for the average cost of obtaining a mortgage. Houston is topped only by New York City, while Buffalo, NY, comes in third, according to a survey done by Bankrate, Inc.. Based on a hypothetical $200,000 mortgage, Bankrate, Inc. surveys the city with the highest populations in each of the fifty states throughout the nation to come up with the rankings. Bankrate also included some of the smaller cities to get a better idea of the state’s averages. The fees paid at closing time that they surveyed don’t include taxes, insurance or miscellaneous prepaid items – homeowner association fees, for example. The survey also assumes 20 percent down payment and a good credit rating.

In New York City, mortgage closing costs topped the $4,000 mark, with Houston close behind at $3,975. North Carolina was at the bottom of the list, where the average closing costs are $2,650.

Buyers often overlook the closing fees as part of the expense in buying a home, and they can often be quite high. It’s worth the homeowner’s time to really read documents closely and question the fees he or she is writing checks for. Some fees, such as origination and title search, can be negotiated. Also, as the housing market remains soft, certain fees have risen and certain other fees have been added on as lenders seek to cover their losses. Appraisal fees, in particular, have risen sharply as lenders request a more thorough, time-consuming job.

The list of fees is extensive and it behooves the homeowner to look closely at where their money is going.

Two years ago, the State Legislature of Texas passed a school finance reform law, lowering school property taxes over a three year period by nearly $7 billion. This has raised questions among homeowners as to what this translates into in terms of benefits or detriments.

First of all, the tax cut applies only to public school taxes and reduces the amount paid by 17c per $100 of the home’s value for 2006 and another 33c for 2007. Many school districts had hit their tax cap of $1.50, so the decrease is necessary.

A concern among homeowners is the appraisal on their property will rise to compensate for the smaller amount of tax collected for public schools. However, even if a property’s value rises 10% a year, the homeowner will still be paying less in taxes.

In this example, a property appraises at $150,000 in 2005. Take away the homestead exemption of $15,000 and the taxable value is $135,000. At $1.50 per $100, the homeowner pays $2,025 in the 2005 tax year. In 2006, the home is appraised at $165,000, with $150,000 of that value taxable. So, at $1.33 per $100, the homeowner pays $1,995. And, in 2007, the house is appraised at $181,500, $166,500 of which is taxable. At $1.00 per $100, the homeowner pays a mere $1,665, $832.50 less than without the reduced taxes.

Still, if homeowners suspect the district is boosting home values to recover lost taxes, they can file a protest with the appraisal review board. Then, if the homeowner still feels they are being treated unfairly, they can submit their case to arbitration under a fairly new law, enacted on January 1, 2006, written to give homeowners an alternative to the district court route.