It was good enough for Ben Bernanke. But what about you?
We're talking about refinancing your home, and it's something the chairman of the Federal Reserve did in 2011. According to his latest financial disclosure form, released last week, Bernanke took out a 30-year mortgage with a fixed 4.25 percent rate, replacing one he took out two years earlier with a 5.375 percent rate. Both mortgages were valued at between $500,000 and $1 million, the AP reports.
While Bernanke clearly has access to information the average consumer doesn't, there's no great mystery about refinancing. "For some people, there's never been a better time to refinance," said Greg McBride, a senior financial analyst with Bankrate.com. Mortgage rates are at 3.79 percent, a near-record low (the lowest was 3.75 percent July 25.)
That said, no two situations are alike. Some people, for example, can't refinance because their homes are underwater -- they have no equity in their homes -- or they have less-than-stellar credit. In general, you should have a FICO score of 740 or above; at least a 10 percent stake in equity in your home; and few debts. Websites like annualcreditreport.com can help you figure out your scores.
So, assuming your, uh, house is in order, should you refinance?
Before deciding, you have to do a serious fiscal examination. "Take a look at your circumstance and see where a refinance could be beneficial," said Keith Gumbinger, vice president at HSH.com, a mortgage information website.
To start, look at the current interest rate you're paying. In the past, mortgage experts suggested refinancing if you can get a rate two points lower than your current rate. But since rates are so low in general, experts say it might be worth it if you can lower your rate by even half a point.
One question to ask yourself: how long do I plan on staying in this home? Will I be here long enough to eventually recoup the costs?
"The point of refinancing is not just to get money back, it's to ultimately save some money," said Gumbinger. "You need to stay in your home for some period longer to accrue some savings from your refinance." So, if you're only planning on being in your home for a short while, it might not make sense to do it.
You also want to see how much it costs to refinance.
"There are legitimate fees you're required to pay to get your mortgage refinanced," said McBride. "That can often be thousands of dollars. If you're refinancing to try to save money, you have to make sure to get the money back it'll cost you to refinance."
While "zero-cost" refinancing is another option, that's somewhat of a misnomer since it's not really free -- you typically must either roll the costs into the amount you borrow or accept an interest rate that's higher by an eighth or a quarter of a percent. Granted, you won't get the lowest interest rate available, but you will cut your interest rate and monthly payment at once, without having to shell out any money in advance.
It pays to do your research in advance. For example, it's your responsibility to pay all the appraisal fees upfront. "They range anywhere from $300 to $500, if not more," said mortgage expert Joe Gross. The bank will only be too happy to take your application and order the appraisal, so do your homework.
And once the bank comes back with a number, don't just take it at face value. "If they tell you don't qualify--that you have too much debt, that your credit is bad-- make sure you go through it line by line," said Gross. "I have seen credit reports when things aren't accurate, so go through it line by line and try to make sure your information matches theirs. Try to be as precise as you can when you apply for the loan, because that will give you a much better chance and the bank will have much more accurate information."
Website likes Zillow.com can help you determine the values of the property in your neighborhood. You should also talk to local realtors.
The final problem, said Gross, is that it can take 60 to 90 days for a refinance, because the banks are very particular and also a bit overwhelmed because they under staffed. So you have to be willing to be patient.
Here's a calculator to help get you started.
Keep in mind that even if your credit is tarnished, you can still get a loan but the lender may require a larger downpayment and or a higher interest rate. Mortgage brokers are good sources to consult if you have an unusual situation.
How soon should you act to take advantage of the low mortgage rates? Here's where Chairman Ben has already tipped his hand: Earlier this year the Federal Reserve vowed to keep rates low though at least the end of 2014.
- Ben Bernanke