Time For Your Mortgage Review

Your mortgage is one of the cornerstones of your financial foundation, so it's important that you take some time each year to ensure your fiscal "house" is in order. Each year's financial planning should include an annual review of your home financing to make sure that your loan is in line with your short- and long-term financial goals, as well as with what's happening in the marketplace.

Some people call it a mortgage checkup, some people call it a mortgage review, but whatever you call it, ensure that you take some time each year to take a look at your home loan. This is especially true right now. Given the current financing market, now is the perfect time to review your mortgage. Rates are low and you could benefit from a decreased monthly payment as a result.

A mortgage review is especially important if you've run into some life changes that could impact how your mortgage fits into your personal finances, such as:

• You need to sell. You are moving out of the area and will need to finance a new home. Obviously, this will be the most compelling reason to press the "reset" button on your home financing and engage in a review of your current loan, but even if a sale is far off on the horizon, you should be considering your options now.
• You want to leverage currently low rates. It could be that you didn't refinance during the "refi boom" a year or two ago. Now is the time to finally take advantage of today's low rates before they tick upward.
• The household income has changed. Perhaps you've changed jobs or experienced a raise or income decrease? Any of these factors might warrant a review. You could want to change the terms of your mortgage to pay it off faster or you might need to refinance to draw out some cash in order to compensate for a shortfall.
• You're expecting a major outlay. Perhaps the kids need braces or one of them is headed to college. Whatever the reason, you might need cash and refinancing with some amount of cash-out could make more sense than taking out a separate loan.
• You now qualify for a better loan. Perhaps your credit score has just improved and you now have access to better rates or terms for your loan. Now is the time to take advantage of your improved circumstances.
• You have an adjustable rate mortgage that is about to adjust upward. Or, you might have an ARM that won't adjust upward for a while, but you want to take advantage of currently low rates.
• You wish to eliminate your private mortgage insurance. PMI is required of borrowers who put down less than 20 percent on their home, and can cost anywhere from .25 percent to .75 percent of the loan value. In general, if you have a 22 percent equity position in your home, you will likely be able to remove your PMI, but be sure to check your state regulations as they vary widely. Look at comparable houses for sale in your neighborhood to help you gauge whether your equity has risen.

Other Mortgage Review Considerations

As you can see, besides today's current low rates, there are many reasons to review your home financing, but there are other factors that go into a mortgage review. It is critical that you meet with a professional who can review your unique situation and help you investigate all of your options. I am available to walk you through the process and ensure you understand the costs and benefits of refinancing with a free mortgage checkup.

For starters, you need to weigh the closing costs against the reasons why you are considering refinancing. There are various charges, including the application fee; title search and title insurance; attorney review fees; loan origination fees; any points; and the appraisal fee. These costs will come to between 3 percent and 6 percent of the loan's outstanding principal.

How much you should pay in closing costs is really a personal financial decision. That said, if your mortgage review goal is to save yourself money through a lower rate, then a good rule of thumb is that you should be able to recoup your closing costs.

In addition to the closing costs, make sure you know if your loan has a prepayment penalty; whether or not a refinance will trigger that penalty; and whether or not the deadline for that penalty has passed. If it hasn't, you'll need to weigh the cost of that penalty against the benefit of the refi.

Another key factor in your mortgage review is the tax deductions available to you*. When you are considering the overall cost of the loan, you also need to consider whether you can write off the loan interest and the origination fees in your taxes for the tax year in which you secured the loan. I can refer you to a local tax advisor who can help you review this information.

You also can make a deduction for any points you purchase, but there is a difference between how points are deducted in a refinance as opposed to a home purchase. Any points that you pay on the loan for a purchase can be deducted for the tax year in which you secured the loan. But for a refinance, the deduction is amortized over the term of the loan.

Now that the year is winding down and 2011 is on the horizon, why not take the time to think about your financial objectives for the coming year? I'd be happy to meet with you and discuss how your mortgage can help you accomplish your goals. Contact me today and let's plan your 2011 mortgage review!

* WJB is not a tax advisory firm. The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Consult your tax advisor or the IRS for current tax year rules, restrictions and regulations.