If you wanted to refinance your mortgage in the past, but couldn’t because your home was underwater (worth less than what you owe on your mortgage), you may be in luck.
According to a report from CoreLogic, a provider of consumer, financial, and residential property information, home prices nationwide increased 12.4 percent on a year-over-year basis in August 2013, compared to August 2012. This means your home's value may have risen without you even knowing it, and as a result, you may qualify for a refinance.
"It could be worth spending a few hundred dollars for the appraisal and see how much your home is worth for refinancing purposes," says Chris Schneider, loan originator at Ruhl Mortgage in Bettendorf, Iowa.
Check out some of these homeowners' situations and how they were finally able to refinance because their home's value jumped. It might be you next.
Homeowner #1: Saving $1,300 per Month by Restructuring Loan
David W. of Corte Madera, Calif., along with his wife, bought a classic two bed, one bath home in August 2006 for $785,000. The loan was a 30-year fixed-rate mortgage with an interest rate of 8 percent, which resulted in a monthly payment of $4,667.
They later took out a second mortgage in March 2007 to do some home improvements. Their second mortgage - which had an adjustable rate of 3.74 percent, added $152 a month to their home costs. That meant they were paying $4,819 per month for both mortgages.
Suddenly, the housing market crashed in 2007, and the couple's home value plummeted along with everyone else's in their area.
"They loved the home but they had a total debt of $755,000, [although] the house wasn't worth that much at all," Spinosa says.
So the couple was surprised when an appraisal in December 2012 valued their home at $890,000. That big jump allowed them to qualify for a refinance and consolidate their loans. They locked in a 3.875 percent, 30-year fixed loan which resulted in a monthly payment of $2,941.
In addition, they took out a HELOC for $130,000 at 5.24 percent, which equaled $568 a month. The reason for the HELOC? The mortgage loan the couple needed exceeded the guidelines set by law for a conforming loan - meaning they would have to take out a jumbo loan, which usually has higher interest rates. In California, the limit for a conforming loan was $625,000. So to make up the difference in the amount of money they needed to borrow, they took out a HELOC.
Even with the added cost of the HELOC, the couple went from paying $4,819 to $3,509 a month for their home loans - meaning their monthly savings totaled $1,310.
Homeowner #2: Locking in a Low Interest Rate and Cutting Out PMI
Arvin Villanueva of Denver was floored in June 2013 when he found out through an appraisal that his home value had increased by $40,000 from his original purchase price. He bought the house in 2009 for $150,000.
"I had been hearing on the news and commercials that home values were up and that I could save some money on my loan if I refinanced," he says.
So, Villanueva called his loan officer and got the process moving forward.
He decided to refinance his original 30-year loan to a shorter 15-year mortgage at 3.635 percent. His original interest rate was 5 percent, so 3.625 percent meant significant savings in interest over the life of the loan.
"I'm only paying $100 a month more with the shorter term loan, but I'll be saving thousands and thousands in the long run. I'm so happy," he says.
And it gets even better. Because Villanueva didn't have 20 percent down when he first bought his home, his lender required him to pay private mortgage insurance (PMI) to protect against him defaulting on the loan. However, his higher home value meant that he now had more than 20 percent equity in the home and as a result, could stop paying PMI - a savings of $60 per month.
Homeowner #3: Saving $782 a Month with Refinancing
Robert Spinosa, a loan agent at RPM Mortgage Inc. in Mill Valley, Calif., has been fielding calls right and left from former clients and new ones, wondering if they can refinance now because housing prices are up.
One of Spinosa's clients, Roland A., bought a 4 bed, 2.5 bath house in Santa Rosa, Calif. for $295,000 in 2002 (the original interest rate he got with the loan is unknown to Spinosa). Roland refinanced a year later in 2003, and locked in a 5.375 percent interest rate on a 30-year fixed-rate mortgage, which meant his monthly mortgage payment was $1,562. Two years later, in 2005, he also took out a home equity line of credit (HELOC) to do some home improvements, with a monthly payment of $739. That made his total monthly payment - for both his mortgage and the home equity line of credit - $2,301.
Roland then had his home appraised in November 2010 at $410,000. At the time, he had $340,000 left on two different mortgage loans on the home, Spinosa said.
But instead of taking advantage of the increase in his home's value and refinancing in November 2010, he waited until April 2013 to get it reappraised. His new home value was $475,000 - almost $200,000 more than the original purchase price.
Spinosa says that an increase in home value usually means that lenders are more willing to consolidate someone’s loans - even if they weren’t the original lenders. So, Roland's increased equity allowed him to consolidate his mortgage and the home equity line of credit into one loan through refinancing.
He was able to lock in a 30-year fixed-rate mortgage at an interest rate of 3.75 percent, which brought his total monthly mortgage payment down to $1,519. The savings? $782 per month.
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