California Market Cooling Off: Refinancing Can Help

By Karen Lawson
Local Lender Columnist
Sep 18, 2006
Many markets in southern California, including the greater San Diego area, have enjoyed double digit increases in value for the past several years, but now the market is slowing down. Investors may be bailing out, but you're keeping your home. Refinancing might be a great option for you at this time.

Refinance to an Adjustable Rate

Adjustable rate mortgages, (ARM's) can help people buy the homes they want in areas where home prices reach sky high. Interest rates on these mortgages can move according to prevailing interest rates. ARM rates also adjust according to the terms of your mortgage. It's important to know when your mortgage payments will adjust. If you recently bought your home, your rate may not adjust for several years, but you'll want to consider eliminating any features that could negatively impact your home equity.

Refinancing to Eliminate "Equity Eating" Mortgage Features

Refinancing to a fixed rate will stabilize your payment and your loan will be fully amortized, meaning that each month a portion of your payment will be paid to principal and interest. Some mortgages provide for interest only payments, and/or negative amortization. If you have such a loan, it may be advisable to refinance to a fixed rate, as negative amortization means that your mortgage balance will increase as the result of unpaid interest being added to the principal.

Depending on real estate market trends, negative amortization could potentially erode your home equity. Knowing the terms of your present mortgage and your home's value can help you find a new mortgage that's right for you.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds a Master's degree in English from the University of Nevada, Reno.