The Federal Reserve Board recently created this website which is designed to help consumers evaluate whether or a refinance of their existing mortgage makes sense. Typically I am skeptical of the Federal Governments ability to simplify this process for consumers. After all they were the ones who brought us the Good Faith Estimate & Truth in Lending disclosure forms as a way of “simplifying” the home loan process. I think we can all agree that these two disclosure forms are anything but simple for consumers.
But I will admit that this website does have some good information presented in an easy to read format. I do take issue with a couple of the comments made on the site:
-The break-even worksheet on the site does not account for changes in amortization schedules between the existing and new mortgage in determining the break-even period. This means the result will favor refinancing more often than not because an existing mortgage will typically have greater principal to be paid in the near-term compared to new mortgage.
-The site also states, “Many financial advisers caution against cash-out refinancing to pay down unsecured debt (such as credit cards) or short-term secured debt (such as car loans).” When done properly using idle equity in a person’s home to pay-off unsecured debt can free up significant cash-flow to use towards savings and investment goals. I don’t know too many financial advisors who believe that is an adverse plan.
Overall the site is pretty good but I still think its most important for an individual to clearly establish their objectives for refinancing before making an ultimate decision. Here is a blog I posted about the subject a while back.
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