When Should You Refinance Your Mortgage?

By Bankrate.com

There are two primary reasons to refinance a mortgage: to get a more desirable rate and terms, or to extract cash from the home's equity.

Rate-and-term refinancing

Rate-and-term refinancing pays off one loan with the proceeds from the new loan, using the same property as collateral. This type of loan allows you to take advantage of lower interest rates or shorten the term of your mortgage to build equity faster. Rate-and-term refinancing refers to a myriad of strategies, including switching from an ARM to a fixed or vice versa. For example, if you have an ARM that is set to adjust upward in a few months, you can refinance into a fixed-rate mortgage. Or if you have a fixed-rate loan and you know you'll move in two or three years, you could refinance into a lower-rate 3/1 hybrid ARM.

Cash-out refinancing

Cash-out refinancing leaves you with additional cash above the amount needed to pay off your existing mortgage, closing costs, points and any mortgage liens. You may use the additional cash for any purpose.

For example, say you bought your house for $150,000 a few years ago and borrowed $120,000. Now the house has an appraised value of $250,000 and you owe $110,000. With a cash-out refinance, you could get a mortgage for $150,000. You would pay off the $110,000 you owe and pocket the $40,000 difference, minus closing costs.

Thinking About Buying a House? When to Say No.

By Michael D. Larson, Bankrate.com

You shouldn't buy a house.

Believe it or not, that's good advice for some people, no matter what the mortgage lender says. Depending on their financial status and aims in life, some consumers will likely be better off renting for a while and buying later, or maybe not buying at all, experts say.

"If you buy a house and are locked into a payment, you're kind of stuck there," says Nancy Langdon Jones, a certified financial planner in Upland, Calif. Get the wrong person into the wrong place, she adds, and "it's really easy to lose your house because that's the first thing to go."

For some buyers, if it feels like it's time to enter into "the biggest financial commitment you'll ever make," it is. But there's a reason experts urge people to be cautious rather than hasty when buying a home. Problems with job security, personal goals, financial resources and credit history can all wreak havoc on a transaction, and it's often too late to fix them after the closing. So rather than jump right in, consumers should see if their situations match one or more of the ones outlined below. If they do, those consumers might be better off putting down that pen for a while.

"People get into financial difficulties and it can happen very quickly," says David Morganstern, a certified financial planner in Portland, Ore. "What we try to do is to try to look more broadly than 'What is the answer to the one question on the table?'"

"If they say, 'I just need advice on buying a house,’" he adds, "we always counsel them to think more broadly."

Job shaky? Don't buy

One of the first things to evaluate is job security. Workers on shaky ground with their employers or those who don't think they'll be able to find jobs nearby if the plant goes belly up might want to wait on getting mortgages, for example. The same goes for people who plan on jumping ship soon.

"If they have been contemplating shifting gears or contemplating moving to another company or just having their resume out or headhunters calling, that would obviously not be a good time to incur debt and the hassle of going through and buying a home," Morganstern says.

The monthly payment isn't the only obstacle to this kind of customer. There are also the required closing costs and other home-buying fees, as well as the commission that most owners end up paying to real estate agents when they sell their homes. Those charges can actually leave someone in the hole if the property is sold after only a short amount of time.

"You're talking a huge loss should there be a drop in property values and you have to move for some reason," Jones says. "If you need to turn your house over quickly and you just put out a huge outlay for escrow and title and points and who knows what else, that's just a slam-dunk for a huge loss right off the bat that will be real difficult to recoup."

Into investing? Don't buy

Trouble also can pop up for people who enter the home-buying process with unreasonable expectations.

Those who think a house will earn them a lot of money as a short-term investment, for instance, might be better off renting, if they can do so cheaply, and investing their cash in the stock market. With home-price appreciation averaging about 3 percent to 7 percent today, they're probably not going to be able to match the historical after-tax return that stocks deliver -- 8 percent.

Property-value gains are by no means guaranteed, either.

Jones recalls the plight of home buyers in Rancho Cucamonga, Calif., several years back. They figured new development and shopping centers filling to capacity with workers, tenants and consumers alike would support their area's economy. But the subsequent opening of the huge Ontario Mills Mall nearby changed the landscape completely. Stores relocated and took jobs with them. "For Sale" signs sprouted from area lawns like weeds. Asking prices fell.

"These were new houses. When people moved in, they put up additional money for landscaping and decorations and putting in pools, et cetera," she says. "But there was a lot of money lost."