Home Refis -- the Good and the Bad!

On any given day and at any given time of the day, if you're watching television you are practically guaranteed to see one of the commercials for obtaining a "refi" for your home.

Not surprisingly, the person presenting the pitch will be a "polished" individual who speaks with a pleasing voice and has a smile that looks to be 100% genuine. The "hook" of course, comes in the very beginning when this smooth talking, highly paid actor, begins with "NO COST..."

We've all heard these commercials so many times we could well do them ourselves in our sleep! My parents, who grew up in the era of the Great Depression, made it quite clear to my sister and I that nothing is free in life and everything comes with a price! So right off the bat, I am very cautious about anyone touting that something is free!

Our Current Economy

There is no doubt that our economy has been suffering for quite some time and the prospects for a healthy recovery anytime soon are very slim.

So how does the mass promotion of obtaining a "refi" play into the picture of boosting our economy? Basically, it is hoped that through a large volume of market activity, confidence will return and renewed spending by business and consumers will reignite the economy. The home "refi" market is keeping consumer spending alive!

Too Good to be True?

For many homeowners, the old adage "if it sounds too good to be true, it probably is!" sums up the truth of the current push for people to refinance their homes. The television commercials sound so appealing. Lump all those high interest credit card bills, along with all your medical bills into your "refi" and enjoy the ease of paying just one simple payment every month.

The stark reality is that this simple payment does not come without packing a punch! Most of us do not bother to read the fine print which is usually located at the end of an overly long financial document. The following statement, however, can be found in the fine-print of one of the current companies pitching "refis" on television today.

** Refinancing or taking out a home equity loan or line of credit may increase the total number of monthly payments and the total amount paid when compared to your current situation.

A firm based in Virginia notes the average price of that quick cash: "at least 5% more mortgage debt and loss of a loan that was a median 7% lower." Suddenly that FREE "refi" doesn't look quite so appealing!

Who CAN benefit from a "refi"?

Those poised to benefit the most from obtaining a "refi" are those who purchased their home with an "adjustable rate mortgage"(ARM) . These mortgages typically offer low introductory monthly payments, then "re-set" higher after the teaser-rate term expires.

Such mortgages have been wildly popular in recent years because they allow people to buy earlier, and/or more than they otherwise could afford. The problem, of course, is that the new interest rate could substantially raise the mortgage payment. One home-owner was shocked to learn his rate was set to increase from 7% to 12%.

It is estimated that about $500 million in ARMS will be coming due for re-set soon. For those buyers who have good credit and a solid job, refinancing might be a good fit to keep rates low.

In Summary

It has been calculated that approximately 23% (nearly a quarter) of all home owners are considering refinancing their mortgage. While for some, this may be a wise decision, for others with high debt and poor credit, it might just make matters that much worse.

Before deciding if a "refi" is right for you, thoroughly check out the positives and negatives of such a decision. Just Google "home refis" and you'll find a staggering 29,200 hits.