Is It Time to Refinance?

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Posted: Mar 24, 2009 12:01 AM
Is It Time to Refinance?

DEAR BRUCE: We are in our late 50s and have a 30-year mortgage on our house. Our house is valued at $270,000, and we owe $120,000. Our monthly payment is $844. Our interest rate is 6.1 percent. We can refinance at 4.8 percent. Should we refinance a 30-year mortgage or go with a 15- or 20-year? Are there advantages to staying with a 30-year or going with the least number of years that we can afford? -- Stephenie, via e-mail

DEAR STEPHENIE: Unless there are humongous fees involved, a reduction to 4.8 percent from 6.1 percent is very much in your favor, assuming that you are planning on staying in your home. If there is a decent reduction in interest rate from a 30- to a 15-year mortgage, I'd take advantage of that, as well. I would not give this advice to people who are 20 years younger than you guys. There is a certain comfort in having a home paid for, and, with a 15-year mortgage, and perhaps adding a little extra for principal reduction, by the time retirement comes, you would be pretty near free and clear. Younger people would be far better off getting this lowest interest rate and investing whatever monies remained in the marketplace. The comfort level cannot be ignored. If that is reflective of your point of view, then I would go with a 15. You should be able to reduce the mortgage interest rate by a few points, and that's to your advantage.

DEAR BRUCE: I am currently coming out of bankruptcy, and I would like to know if I could refinance my home in my own name. I don't think this is something I can do right away without building some credit up. Currently, my mortgage is in my brother's name. I don't have any outstanding bills except for a few hospital bills from a surgery this year. How long do I need to wait to refinance? I do have one positive credit rating that I just paid off in December as well. What shall I do to build my credit score at this point? -- T.P., via e-mail

DEAR T.P.: Bankruptcy is very likely the most severe blemish that you will have on a credit history, and it ordinarily takes years to do away with it. Unfortunately, in today's marketplace, lenders are being much more careful about who mortgages are granted to and their credit history. You mentioned your mortgage is in your brother's name. In other words, your brother owns a house that you are living in, technically. All you can do now is continue to pay your bills in a timely fashion and, as these positives are added to your credit report, your credit score will improve. I wouldn't look for a rapidly improving score for some time. It may be that you could qualify for a mortgage with your brother's co-signature, but this presents some liabilities on his part that he may not be willing to undertake, and that is understandable.

DEAR BRUCE: I recently received a statement about an unpaid bill that dates back nine years. The company said that this would go on my credit report. However, instead of checking with the company concerned, I stupidly paid the bill. That was money I did not have, so I used a credit card. Did I make the wrong decision? -- Reader, via e-mail DEAR READER: Yes, I think you made a mistake here. I assume that the unpaid bill was legitimate. The likelihood is that the company that you mentioned had purchased that bill for a few pennies on the dollar and would have settled for significantly less. However, that having been said, the bill has been paid, and the only thing that you should have insisted upon is the bill show as having been satisfied on your credit report. In the event that the obligation continues to show up on the credit report, you should put it in contest with the agency that the bill has been satisfied and send some documentation to prove your contention. They should then show it as being paid.