Plan ahead. Work hard. Retire young.
RSS feed
  • Repair Before You Refinance


    While the recent economic turmoil throughout the world has been a nightmare for many people, for just as many it has represented an opportunity, as interest rates have fallen steadily, resulting in mortgages and financing costs at record lows. As a result, many people have chosen to refinance their home mortgages in order to take advantage of much lower rates a typical family with a 30-year mortgage opened in 2006 at a rate of 6.375%, for example, thought they had a very good deal until 2012 when interest rates dipped below 4%, enabling our typical family to refinance into a 15-year fixed-rate loan at 3.25%. It's no surprise that people who are in good financial shape are seeking to improve their long-term mortgage prospects with a refinance.


    However, too many people rush into the process. Often a simple phone call to ask a few questions results in signing an application just a few days later as homeowners are pushed along by eager mortgage consultant or broker seeking to get another loan on the books. If you're dealing with a reputable broker, this probably still works out to your advantage but there are a few benefits to taking a breath before diving in. One of the best ways to prepare for a refinance may seem to have nothing to do with your financial health: Consider your home and make improvements.


    One of the most crucial aspects of any mortgage, whether for a home purchase or a refinance, is the appraisal. Your home's value will be determined by a professional appraiser hired by the bank or mortgage company, and this is sometimes a shock to the homeowners. After all, if you purchased your home within a few years, it's understandable that you might expect the value of that home to have stayed relatively steady. However, this is not always the case, and it's better to know what you're dealing with before you start paying fees and filling out paperwork. When first considering a refinance, spend the money to have a professional appraisal done. Don't simply rely on a web site such as to base your judgements on while these services can give you a very rough idea of where you stand and may provide a wealth of useful information, they are not considered reliable by the banks or mortgage companies you will be dealing with.


    A professional appraisal will tell you two things: One, if a refinance is even worth pursuing. If the value of your home has fallen far below the balance on your existing mortgage, a refinance attempt might be a waste of time. Two, if there is anything you can do to improve the value of your home. An appraisal will include comparable houses from your neighbourhood, and if your home value compares unfavourably it may be possible to mitigate this. Some things, such as square footage or lot size, are beyond your control, but if the appraisal makes it clear that some repair or renovation work on your home can bring its value up to the number you need, it may be worth it. While many people are hesitant to put money into a house in order to improve their mortgage, it's important to remember that cutting your mortgage term, lowering the mortgage rate, or, ideally, both will save you a very large amount of money. Crunch those numbers and see if the money you can save with a refinanced mortgage will exceed the money spent on some repairs and renovations.


    Mark Quigley is the owner and director of Darcey Quigley, an independently owned debt recoverycompany specialising in commercial debt recovery services based in the UK.