Should You Refinance Your Mortgage in 2010?

The market looks gloomy with reports of unemployment at an all time high and during these trying economic times, it's hard to see the rainbow at the end of the cloud. However, in 2010, there is good news for home owners and those who are interested in becoming first time home buyers.

I have been a Finance Professional for more than 20 years and began my journey as an intern at JP Morgan Chase on Wall Street in New York City. I spent many late evenings in the Commercial Paper Department and learned everything about Commercial Paper and International Wires. However, it wasn't until almost 10 years later that I would enter the world of Consumer and Retail banking.

Many consumers remember that back in the early 2000's there were dozens of 80/20, ARM, Interest only and Negative amortization products available. Unfortunately today there are fewer and fewer options when it comes to creative financing but statistics show us that there is still hope for homeowners as home values are rising and banks are offering portfolio products.

I was speaking to a former co-hort of mine last week and she informed me that there are some great options available for current home owners as well as first time home buyers. Although the market is still recovering, the government has implemented some great initiatives to help people stay in their homes and continue to build equity. Here are few of those programs that may answer some of your questions about benefits of home refinancing:

1. Lower Rates: The current US Prime Rate is at an all time low of 3.25 percent. This is good news because it means that you are able to get a much lower interest rate from your bank or mortgage company. Some conventional banks are now able to offer you a rate of prime plus 1.5% or 2.00%. These rates vary depending on loan size and credit scores. In some cases you have the ability to buy down your rate which means you could possibly end up with a mortgage rate based on prime minus .50%. Again, this rate is determined by your credit score and mortgage history.

2. Tax Credit: Many loan programs and products today will allow you to refinance your current mortgage at a lower rate and receive an even bigger tax credit this year if you've owned your home at least 5 years. The tax credit is $6500.00, but check with your local Mortgage professional to learn more about the details and how you can qualify for the tax credit program).

3. Credit Score Benefit: Owning your home is the best way to increase your Credit Score as you consistently pay your monthly mortgage on time. Most loan programs only require a 620 middle score to purchase your home, however with 12 to 24 months of great mortgage payment history you may see your credit score increase by as much as 75 to 100 points.

4. Pay Your Home Off Sooner: If you know that you want to stay in your home and pay it off, what better way to accomplish this goal than to reduce your principal as quickly as possible. When you have a lower rate you can continue paying the same monthly mortgage as you have in the past and pay more towards your principal. What most people don't realize is that you typically don't start making a dent in your principal until 9 or 10 years into your 30 year mortgage. Therefore, it is always smart to pay more towards your principal when you are able to do so. (Check your current amortization schedule to see how much of your mortgage payment is going towards your principal each year).

5. Reduce Your Monthly Payment: Just as some people are able to pay more towards their principal, there are others that are finding it difficult to maintain their current monthly mortgage payments. If you find yourself in this predicament, there is help for you through the Save Our Homes Program or Making Homes Affordable Plan (http://makinghomeaffordable.gov/pr_12102009.html)

6. Buyers Market: Due to the current economic conditions, you are in what is called a buyer's market. This means there is more inventory than buyers. As a result people are able to buy foreclosed homes and new construction for pennies on the dollar. Therefore, if you know you want to stay in your home for 10 to 15 years and wait until the market further stabilizes, then it's a good time to refinance and lower your liability.

7. Investors Dreams: Since there are more homes available than buyers, many people are able to become investors for the first time. This is typically done through purchasing homes through short sales and foreclosures. The short sale programs are typically a win win situation because most of the short sale homeowners want to sell their homes and move on with their lives, enabling the buyers the ability to purchase the homes at such discounted prices that they stand make thousands of dollars during resale. (http://www.canalinvestments.com)

As you can see, there are many great reasons to refinance your home today or become a first time homeowner or investor. The sky is the limit and so is the real estate market.