The much discussed and publicized housing crunch has brought to light the challenges faced by homeowners.

The combination of weak housing sales, falling home values, tighter credit conditions and a slowing economy have left financially strapped homeowners in a tough spot -- some borrowers have no other choice but to foreclose if they cannot find a buyer for their home or pay or refinance their loans.

Orangeburg area mortgage officers say despite the challenges many homeowners are facing, refinancing is something that should not be entered into lightly.

Knowing when to refinance and when not to is often the key ensuring financial viability for a family and can be one of the most significant financial decision made in a lifetime.

“This is your home,” BB&T loan officer Gus Whetsell said. “Not just a mortgage. We are generally talking about $50,000 to $600,000 of your money.”

Jennifer Edwards, mortgage originator with Orangeburg’s Community Resource Bank, said locally she saw about a 20 percent increase in home refinancing earlier this year when mortgage interest rates were the lowest in several years.

Rates were averaging about 4.85 percent for a 15-year to about 5.5 percent for a 30-year loan.

Currently, rates for a 15-year are 6 percent and a 30-year is 6.375 percent.

“The main thing we are seeing is that everything is going up with prices in gas and food,” she said, noting that because of the tough times, people are taking serious measures. “It (refinancing) is a long-term decision and is probably the biggest investment most people will make in their lifetime.”

At BB&T, Whetsell said the trend over the past six months appears to be more toward consolidation of debts rather than refinancing as most individuals wanting to refinance have already taken advantage of the lower rates.

But he said with debt consolidation, clients are provided a way to minimize their monthly payment obligations, allowing an opening to apply the additional funds toward their mortgage payment.

“We are seeing individuals who have worked for companies for many, many years now either being laid off or seeing a reduction in hours and they need some relief,” Whetsell said. “Our economy is not nearly as strong as it was this time last year, and we are seeing the cause and effect right here in our own community.”

But Whetsell said it is not all gloom and doom in Orangeburg.

“Our home values are remaining steady and we appear to be on an upswing,” he said. “We have a great deal of industry coming in over the next few years, which will help increase values and even further stimulate our local economy.”

To refinance or not to refinance When it comes to refinancing, Whetsell said there are several things an individual should do.

“Most importantly, what are the individuals’ financial goals -- short and long term,” he said.

Is an individual looking for a better interest rate or trying to lower the monthly mortgage payment? Or is debt consolidation the goal?

Specifically, any assessment to refinance would need to include: one’s plans related to the occupancy or sale of the current home, expected changes in income, long-term medical and family needs.

Ultimately, though, the decision to refinance will have to be assessed through an individual’s specific needs. The engagement of a reputable and experienced loan officer is recommended.

“We will look at the entire portfolio, talk to the client about their goals and based on the results determine a plan of action,” he said. “It is always best to know exactly where you stand financially.”

But generally a person should consider refinancing when rates are down or when he or she can reduce the amount of interest being paid in an entire portfolio. A look at all liabilities with an aim to reduce the overall interest will help the individual pay less over the long run.

Edwards said generally refinancing should not be done from a shorter-term mortgage of 15 years to a longer-term mortgage of 30 years.

“It is not wise to refinance unless the rate you are getting is at least 1 percent lower,” she said.

Whetsell said in the unstable economic times, not only is a lower rate an indicator on whether or not to refinance, but a fixed mortgage is the general way for people to go unless they are selling their home within a year’s time.

Whetsell said a fixed-rate mortgage would be beneficial for those wanting to lock into a low interest rate for the life of the loan and for individuals who need to budget a fixed payment amount into their monthly expenses.

With a fixed mortgage, the loan interest rate will not fluctuate with the market.

But with an adjustable-rate mortgage, the interest rate will adjust with the market after say a period of three to five years. If rates remain low, no problems arise, but the rates can go up -- sometimes so much as causing the mortgage payment to double.

Whetsell said ARMs were a major reason for the national foreclosure crisis as people were unable to meet payment obligations when rates increased.

Credit scores Another issue that has grown in importance is the credit score related to mortgage rates.

Whetsell said there was a time when a person could get a loan approved with the same interest rate with a credit score of 620 or 820. Credit scores did not matter as much when it came to the ability to qualify for a loan.

“It certainly does now,” he said, noting that as of Jan. 1, 2008, credit score criteria has often been a deciding factor in interest rates.

Edwards said in general the Federal Housing Authority will typically allow a homeowner to get a fixed rate mortgage with a minimum credit score of 580. More conventional products through mortgage giants such as Fannie Mae and Freddie Mac require at least a 620.

“There are big rate differentials based on credit scores now,” Edwards said. “The higher your score, the better rate.”

The number of foreclosures has upped the bar on credit scores.

“A lot of times certain mortgage people were not doing things they should have been doing,” Edwards said, noting that a credit score shows a person’s financial wherewithal to pay and can bring assurance to lenders.

Edwards said as a result of the increased importance of the credit score, it is crucial for individuals to pay closer attention to their budgeting practices.

“A person should not have a lot of open revolving accounts with high balances and should avoid collections,” she said. “Medical collections along with others have a major impact on your credit.”

Generally, Whetsell said most of his clients have a credit score higher than the FHA minimum.

“Financing is still available to help most of the public,” he said.

T&D Staff Writer Gene Zaleski can be reached by e-mail at gzaleski@timesanddemocrat.com or by phone at 803-533-5551.

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