Q: My partner and I are wondering if we should re-finance our house. We have a fixed rate 30-year mortgage, which we thankfully can afford, but our interest rate is over eight percent.  It was the best option at the time because of poor credit.  We have made all our payments on time, and we both finally have good jobs.  Is it really worth refinancing even if we can still make our current payment? If we ask the mortgage servicer for a lower rate, might they get nervous and call our loan because of our past troubles?

A: No; according to the Fair Isaac Corporation, many homeowners express concern in contacting their mortgage servicer because they believe that their servicer will view this as a sign of potential trouble and may take some preemptive action against the homeowner. This is not the case. Your mortgage servicer cannot modify the terms of your loan just because you have inquired about receiving a lower rate.

However, it is time to re-finance your mortgage!  Interest rates are currently much lower than the eight percent you currently pay.  For example, a fixed rate 30-year $200,000 mortgage at your current interest rate of eight percent results in a monthly payment of $1,468 per month.

Today, with rates at near all-time lows, you may be able to get that same fixed rate thirty-year $200,000 mortgage with an interest rate of only five percent.  That monthly payment would be $1,074, a savings of nearly $400 per month!  To see if re-financing is a good idea for you, check out http://themortgageinsider.net/mortgage-calculators/.

To qualify for the best mortgage lending rates, be sure:

• You have good credit and any incorrect information on your credit report is removed. You can check your credit report free at www.annualcreditreport.com. Many lenders have tightened their underwriting practices, so check your report first.

• Make sure your home has sufficient equity. Usually, in order to re-finance your home, lenders require that borrowers have at least twenty percent equity in the property.  If you are looking for a loan for more than 80% of the value of your home, it may be difficult to get the low rates being advertised. However, shop around, prepare your home for appraisal and check out the Making Home Affordable program in this month’s Tip section.
  

• Make sure that both you and your partner’s income are properly documented. Income documentation is crucial to re-financing a mortgage in these current economic conditions.

Good luck! Once you are saving $400 per month, build a savings safety net—experts recommend up to six months of living expenses—then plow the savings into a low-expense retirement account.  Remember $1 saved over 50 years with an 8% return yields $47.  That $400 per month could go a long way to retirement savings!