This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The 3 Kinds of Homeowners Who Can Still Refinance

NEW YORK (TheStreet) — By now most homeowners know that the refinance ship has sailed. Or has it?

For those whose circumstances have recently changed there may still be a chance to get a better mortgage deal. A homeowner whose credit score has improved, for instance, might now be able to get a low enough rate to make the refinance arithmetic work, as could one whose income has risen significantly or one who has given up self-employment to work for a stable firm.

Refinancing was big business in recent years, as homeowners took out new mortgages to pay off older ones charging higher rates. In fact, refinance business kept mortgage lenders afloat in the years the housing market was in the dumps. But a rise in rates over the past year or so has taken the profit out of refinancing, as a new loan probably won't save you enough to offset the costs of getting it. Indeed, it may not save you anything.

But that assumes an apples-to-apples situation, which may not be the case. 

Credit scores are based on the individual's history, the most important factors being the track record of paying bills on time. A good history in the past year or 18 months can help overcome the damage from late payments or defaults further back, allowing the applicant to get a lower mortgage rate.

On his website,, Jack M. Guttentag, emeritus professor of finance at the Wharton School, says a person with a good credit history can raise a score from 620 to 660 in 18 months. That could induce a lender to reduce the applicant's mortgage rate by about 0.375 percentage points, from 4.625% to 4.25%, for example. If the homeowner had an older mortgage charging 5% or 5.25%, this extra saving from an improved credit score might be enough to tip the balance and make refinancing pay. That would be more likely, of course, if the homeowner expected to have the new loan for many years, allowing the monthly savings to offset the various refinancing fees.

A homeowner who had been able to save some money might also tip the balance by paying points, which are upfront interest charges that result in a lower overall rate. Again, the longer you will have the mortgage, the more likely this move will pay off.

People who have experienced a significant increase in income might also get a better deal on a new mortgage than they did on the old one.  That's because their payment would now represent a lower percentage of their income. Lenders like that because homeowners who are not up to their ears in debt are less likely to fall behind in payments.

Newfound wealth would also enable a homeowner to pay off a chunk of principal during a refinancing. The new loan payment would then be smaller related to income, encouraging the lender to offer a lower rate. A bigger income could also allow you to get a low-rate 15-year mortgage to pay off a 30-year loan charging more.

Not many people have experienced skyrocketing wage gains, but many people do experience a surge in household income when they get married or a spouse goes back to work.

In recent years it's been difficult for the typical self-employed person to get a mortgage, and those who did often paid higher rates because they were deemed risky borrowers. So if you've gone from being your own boss to working for someone else, see if you can get a better rate. You might need a year or two in the new job to earn a lower offer on a mortgage, but there's no reason to suffer with a pricy loan any longer than necessary.

It's true: Fewer and fewer homeowners can profit from refinancing. But that doesn't mean everyone. Before abandoning the idea, assess the changes in your finances, and then check with a few lenders. If you can find one that will offer a low rate and minimal fees, the refinancing math might just work. 

Use the Refinance Breakeven Calculator to see what it would take to justify the expense of refinancing, then shop for the best deal with the Mortgage Rate Search tool

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.19 0.00%
FB $118.06 0.00%
GOOG $695.70 0.00%
TSLA $222.56 0.00%
YHOO $37.40 3.90%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs