Are you leaning towards a refinance, but wondering what's next?

The past year's credit crunch and steep decline in home values have kept many homeowners on the fence when it comes to mortgage refinancing. That trend may be changing, however, as interest rates have reached historic lows and President Obama's housing plan has eased the way for more attainable credit.

Today, homeowners generally can refinance into a 15- to 30-year fixed-rate mortgage at historically low rates—levels not seen since the height of the housing bubble in 2003. Such low rates offer an unprecedented opportunity for homeowners to save by reducing their monthly payments, shortening the term of their mortgage, or moving from an adjustable- to a fixed-rate loan. Any one of these options could help consumers regain their financial footing during otherwise tough economic times.

Of course, conditions are unlikely to remain this attractive for long. Interest rates have already inched up from recent lows around 5.00%. As the U.S. economy continues to recover and our GDP rate rises again, homeowners should expect a similar increase in long-term mortgage rates.

The difference between interest rates and APRs

Let's say you're done pondering all the money you could save over the life of your loan by refinancing while rates are low. You're ready to come off the fence and lock in at today's rates. What now?

First, understand that securing the lowest interest rate does not guarantee the best deal. Loans generally come with closing costs, points and other fees. These amounts are added to the rate of interest of the loan to give you an Annual Percentage Rate (APR), which represents the real cost of your loan. A low interest rate, laden with high fees, could yield an APR that's outside your comfort zone.

Lenders are required by law to post their APRs when quoting the rate of interest on their loans. As you shop, make sure you compare APRs to APRs to find the best bargains. You'll also want to work with a knowledgeable mortgage lender—one who considers your entire financial picture before placing you in a specific mortgage product. Your lender also should review in detail all of your final costs, including a breakdown of your new monthly payments, before you seal the deal.

What to expect from the appraisal process

Many mortgage applications require an appraisal, which is used to evaluate the current market value of your property and any adverse factors that could diminish its future value. In most instances, your mortgage lender will arrange for the appraisal, with the appraisal fee being one component of your closing costs.

A qualified appraiser will walk through your property at an agreed upon time to document its condition inside and out, noting the layout, quality of construction and any upgrades or modernizations. These factors, as well as the square footage of the gross living area (GLA), will be compared to similar properties that have recently sold in your area. Appraisers rely on a wide variety of sources: the local Multiple Listing Service, tax assessors' records, feedback from real estate professionals, county courthouse records, comments from the homeowner, his or her own personal knowledge, or office files from previous appraisals. Once completed, the appraisal will result in an estimate of your property's likely sales price. Your mortgage lender will use this estimate in determining how much of the property's market value can be used as collateral for your refinance.

New Loan-to-Value requirements

The Loan-to-Value Ratio (LTV) is a factor used by mortgage lenders in determining the refinance loan amount they will approve. LTV is a simple math equation: the amount of the refinance loan is divided by the home's current total value. For example, if a home is appraised at $200,000 and the loan amount is $160,000, the LTV ratio is 80%.

Many mortgage lenders will not issue a mortgage loan with an LTV ratio that exceeds 80%. That's mainly because the two largest mortgage loan buyers in the United States, Fannie Mae and Freddie Mac, often will not purchase loans with LTVs higher than 80% unless private mortgage insurance is purchased.

Unfortunately, the housing crisis has caused home values to decline, so it is possible for a homeowner who is current with his/her mortgage loan payments to discover his/her LTV has risen, not declined. For instance, if a new appraisal of our example property valued it at $180,000 (a loss of 10% equity since the initial $200,000 appraisal), the LTV would now be 88.9%. Under normal circumstances, the homeowner may find it difficult to locate a lender that would refinance his/her current mortgage loan and allow him/her to take advantage of today's low rates.

Fortunately, the Federal government's "Making Home Affordable" program now allows qualified homeowners with a first mortgage LTV of up to 125% to refinance into a new mortgage. An owner of a one- to four-unit home whose loan is owned or guaranteed by Fannie Mae or Freddie Mac and who has not been more than 30 days late on a mortgage payment in the last 12 months may be eligible.¹ For example, the owner of a property appraised at $200,000 who still owes as much as $250,000 on a first mortgage may be eligible. Other components of the President's housing plan likewise have eased the refinancing process.

Distressed MSAs and home values

Since the housing market crash in December 2006, five of the 10 largest Metropolitan Statistical Areas (MSAs) in the United States have suffered housing devaluations of 20% or more, with San Francisco and Las Vegas being hit the hardest.

Homeowners looking to refinance in affected MSAs should be prepared for a potentially steep decline in their home values, even if they've kept up their properties and met all payment obligations. No house is an island: property values are based on similar-home comparisons in a particular locality. If you're living in a distressed MSA, your home value may be affected.

The good news is that nationwide recent numbers indicate a slowdown in home price depreciation. According to IAS, housing prices fell just 1.0% in March 2009 following a 3.0% drop in February and a steeper decline of 3.5% in January—the largest drop ever in IAS's monthly index.²

Home financing solutions, personal service—right here, at EverBank

EverBank is committed to providing mortgage solutions that reflect the unique needs of our banking customers. Our mortgage specialists are trained to consider your individual circumstances and goals, with the aim of providing the most attractive loan terms and features for you and your family.

Act now to lock in today's low interest rates and you'll receive $500 off your closing costs with EverBank.³ Ready to get started? We invite you to get a quote and apply online or simply contact one of our Mortgage Specialists at 877.436.4381.