Reader Pouring 70% of Her Paycheck Into 2 Mortgages

Sun-Times readers had questions on whether they should refinance. We asked for responses from Pat Doland, principal of Northbrook-based Reason Financial Advisers, and Don Duncan, president of Downers Grove-based D3 Financial Counselors.

My payments are too high!
Q. I am thinking of refinancing for a number of reasons. More than 70% of my paycheck goes to my mortgage. I need to refinance because almost all of my savings have been depleted for covering my mortgage, bills and everyday expenses. I have two mortgages. The first one’s rate is 6.25%, and the second one is at 7.35% with a balloon payment after 13 years of $15,000. Can you help me save my condo from foreclosure with a lower rate that in turn will result in a lower mortgage payment? The total payment of my mortgages are $1,457. –Connie

A. With mortgage payments equal to 70 percent of your income, it will be very difficult, if not impossible, to refinance your condo. Credit requirements have tightened as lenders have become far more conservative. If you’re behind in your mortgage payments, I’d suggest you speak with your current lender to try to identify an option that is agreeable to both of you. If your mortgage is current, I’d suggest you talk with a Realtor to determine how long it might take to sell and what you could expect to receive in this soft market. –Doland

I want to head-off my ARM’s scheduled increase
Q. Is now really a good time for me to refinance? My adjustable-rate mortgage adjusts in July 2010. Perhaps the economic climate would be somewhat better in 2010 and I may have more options. –Joyce

A. Contrary to popular opinion, when the economy is slow, rates are typically low. When the economy is booming, rates will be higher. If you can save money by refinancing now, do it. You can always do it again in 2010. –Duncan

I want a shorter term
Q. I have a 30-year mortgage at 7.25%. I refinanced four years ago and pulled equity to pay bills. I would like to refinance to a 15- or 20-year mortgage. I don’t need to pull equity out, but my mortgage has a $5,000 penalty if I refinance before five years. Would I still be ahead if I refinanced or should I just wait another year to think about it? –Kori

A. It depends on the balance of your mortgage. Assuming you owe $400,000, you could save about $5,000 in interest during the first year if your interest rate was 1.25 percent lower. If you owe less than $100,000, I’d probably wait. It’s a harder decision if your balance is between the two figures I mention. I’d be inclined to wait and take my chances under $200,000 but would probably refinance if it’s over. –Doland