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Homes Regaining Equity as Home Prices Move Higher, Time to Refinance?

Millions of homeowners haven't been able to refinance their mortgage even though refinance rates made record lows in 2012. If you bought a home during the height of the housing bubble, it's likely you haven't been able to refinance your loan because you don't have enough equity in your home. Watching mortgage refinance rates move lower the past 4 years without being able to refinance has frustrated many homeowners whose homes are "under water." Conforming 30 year and 15 year refinance rates made a series of record lows in 2012 as many homeowners were left seething on the sidelines.

Homes Regaining Equity as Home Prices Move Higher Time to RefinanceA report released by Corelogic shows 1.7 million homes regained equity in 2012 and if home prices increase another 5 percent, an additional 1.8 million homes will regain equity. While homes are more valuable now, prices have to move much higher in order for millions of more homeowners to refinance.

23.2 percent of all properties with a mortgage have positive equity but not the required equity of 20 percent in order to refinance. That amounts to 11.3 million home loans that can't take advantage of lower rates and refinance.

There are, however, government programs that allow a homeowner to refinance if a loan is held or guaranteed by the government.  The Home Affordable Refinance Program (HARP) allows homeowners to refinance even if they don't have the required 20 percent equity.

HARP only helps homeowners whose mortgage is owned or guaranteed by Freddie Mac or Fannie Mae. There are also other requirements in this program, including that the borrower must be current on the loan and the mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

There is another program that allows homeowners to refinance to an FHA loan with a maximum loan amount of 97.5 percent of the value of the home. The FHA Short Refinance program is designed to help homeowners refinance if their current lender agrees to participate in this refinance. The lenders are required to reduce the amount owed on your first mortgage to no more than 97.75 percent of the home's current value.

While these two programs are helpful, there are still millions of homeowners who don't quality for refinancing.  In that case, the only way they will be able to refinance is when home prices move higher. The Corelogic report breaks down LTV (loan to value) by state and there are some states that have a long way to go on higher home prices. For example, in the state of Nevada, the average LTV is 103.7 percent.

Whether or not you're in a position to refinance depends primarily on when you bought your home. If you bought during the height of the market in 2006/2007 and bought in California, Florida, or Nevada, you probably still don't have the required 80 percent LTV to refinance. The only way to find out if you qualify to refinance is to start the process of refinancing.

The only costs you'll have to pay upfront before you find out if you can refinance is the appraisal fee and possibly a mortgage application fee, depending on the lender. The appraisal fee varies by lender and state but you can expect to pay anywhere between $200 to $500.

When refinancing, the general rule is that it pays to refinance if the current refinance rate is at least 1.00 percent lower than your current mortgage rate. Another general guideline is that you should be planning on staying in the home for at least a few more years to recoup the cost of refinancing.

Refinance rates today on 30 year conforming loans can be found as low as 3.25 percent with points. 15 year refinance rates can be found as low as 2.25 percent with points. If you are refinancing, you should consider refinancing from a 30 year loan to a 15 year loan. The monthly payments are more but you'll be shocked at the amount of money you'll save in mortgage interest by refinancing to a 15 year loan. Use our mortgage calculator to see the savings.
Author: Brian McKay
March 21st, 2013