Should You Refinance Your Mortgage?
By Sheryl Garrett

You might want to refinance to lower your mortgage payment or to access equity you have in your home for an important expense. When you’re considering refinancing a mortgage, you look at many of the same issues that you initially looked at when checking out your loan options, including the following:

    * How long do you plan to stay in the home?
    * What is your current interest rate?
    * What interest rate could you obtain on a new mortgage?
    * Will you be refinancing your mortgage and pulling out additional cash to              use for other purposes, such as paying off credit-card debt?

If you have significant equity in your home, and you need to tap that equity to pay off high-interest, nondeductible debt, finance a child’s college education, pay for necessary home renovations, or any other purpose you deem worthwhile, refinancing may be your best option. However, refinancing isn’t the only option for tapping into home equity.

Be careful not to use any money that you obtain through refinancing as a quick fix for a systemic problem. If you're going to put your home at risk to pay off your credit cards, do yourself a big favor and don’t let it happen again.

With refinancing, you need to keep in mind that closing costs will be levied against you. It's safe to assume that somewhere between $1,200 and $1,500 is the typical cost to refinance.

The Should I Refinance Worksheet provided here helps you determine whether refinancing is a good idea.

If you plan to stay in the house for at least a few years beyond your break-even point, you should probably refinance at this time. The process of shopping for a new home mortgage to refinance an existing mortgage is exactly the same as the process you went through to obtain your first mortgage.

Click here for your refinance work sheet

Highlights

United States

•   Signs of improved economic growth continue to spring forth. This week, retail sales, industrial production and housing starts all surprised on the upside.

•   The bi-partisan tax plan passed the Senate and the House this week and will soon become law, providing an additional boost to economic growth in 2011.

•   Beyond the next few quarters, a further improvement in economic activity will require resolution of the outstanding issues holding back growth: clearing foreclosures, reducing uncertainty in the housing market, and repairing household balance sheets.

Canada

•   The economic data this week were mostly good news. Manufacturing sales up 1.7% in October, and forward looking indicators point to continued strength in the coming months. Meanwhile, more good news came from the existing home market with sales up 5.4% - a fourth consecutive monthly gain. Sales are still down 16% from year ago levels.

•   In other news, we learned the Canadian household debt-to-income ratio surpassed that in the U.S., rising to 148%.  Both Bank of Canada Governor Mark Carney and Minister of Finance Jim Flaherty expressed concern over the level of household indebtedness.  In the event that household debt became a larger concern, both argued that regulation would be the most appropriate tool to curb household borrowing.

click here to read full report

Highlights

United States

•   A compromise on Federal 2011 tax policy was reached this week between the White House and congressional Republicans

•   The package surprised markets, and prompted forecasters – including ourselves – to upgrade projections for next year’s growth

•   The plan provides an important source of short-run stimulus

•   However, one must remain cognizant that the proposals are rather short-term in nature, and do nothing to address the US government’s longer-run debt challenges

Canada

•   Optimism surrounding the U.S. economic outlook beginning to materialize.

•   Near-term U.S. economic growth bolstered by fiscal and monetary measures.

•   Will be good news for Canada ’s export sector.

•   However, this week’s interest rate announcement and the release of the winter issue of the Financial System Review highlight that the Bank of Canada is firmly focused on the balance of risks rather than near-term growth.

•   With heightened sovereign debt concerns, the elevated Canadian dollar, and uncertainty regarding the global outlook weighing against record high household debt levels and relatively sticky inflation, the Bank is caught in a delicate balancing act.

Click here to read full report

Highlights

United States

•   U.S. non-farm payrolls disappointed this week with a gain of only 39K in November, following October’s gain of 172K.

•   Nonetheless, signs continue to build that U.S. economic growth and therefore job growth should continue to improve in 2011. One dissapointing month does not alter this view.

•   While progress will continue, the pace will be moderate and the unemployment, which in November rose to 9.8%, will remain elevated and inflation will remain subdued.

Canada

•   This week saw the release of three lukewarm Canadian data reports that all served to temper expectations that the economic recovery would be smooth sailing going forward.

•   On the heels of a large deterioration in net trade, Canada ’s current account deficit widened to $17.5 billion in Q3 (4.3% of GDP), the largest level on record since 1946.

•   Q3 real GDP growth came in at disappointing 1.0% annualized growth, below the Bank of Canada’s forecast.  However, all signs tell us that there is upside potential going forward.

•   In November, the national economy squeezed out 15K net new jobs, better numbers than the last few months, but a far cry from the numbers seen earlier in the year.  Job growth is likely to remain lackluster in the next few months as there is simply not enough incentive for firms to regain their former robust pace of hiring.  

Click here to read full report