How do I go about refinancing my home? This seems to be a question being asked a lot lately, mainly because of the amount of people in a situation that means they are unable to meet the payments on their current loan. Obviously, this is not the case for everyone needing or wanting to refinance their home, and there are many extremely good reasons to do so if this is their only equity.

But the current financial crisis has changed the refinancing and remortgaging landscape for the worse, meaning it is no longer as easy or practical to do so. In many cases it is impossible, depending on one’s financial situation. Those needing to refinance because they are unable to make payments on existing loans are also likely to have missed payments and have a poor credit score.  It is possible to find financing in this case, but one must look carefully at the deals being offered – many of them are potentially dangerous – especially the ones with variable interest rates. There is no doubt in my mind that as the financial crisis continues to unfold, interest rates must rise and sooner rather than later. Any one committed to an adjustable rate mortgage is likely to find themselves looking at 15-20% interest within a year or two.

The moment the economy starts to turn is the moment interest rates will shoot up, so until such times as this happens do not believe any lying politician that the worst is over and the corner has been turned. You will know as soon as they do – you will be seeing sky-high interest rates and it might actually be worth putting some money in a bank account.

Speaking of bank accounts, it is interesting to note a recent report by Andrew Cuomo, the New York Attorney General that many of the banks that require taxpayer bailouts some how managed to pay their executives more money than the banks earned. Goldman earned $2.3 billion, paid out $4.8 billion in bonuses and received $10 billion in Troubled Asset Relief Program (TARP) funding; Morgan Stanley earned $1.7 billion, paid $4.475 billion in bonuses and received $10 billion in TARP funding, and JP Morgan Chase earned $5.6 billion, paid $8.69 billion in bonuses and received $25 billion in TARP funding.

Not to put too fine a point on it – if you were wondering what happened to the government bailout monies – now you know. This money is, no doubt, sitting in Swiss bank accounts waiting to be used to swoop down on distressed assets as the recession continues to take it’s toll. It does not matter, apparently how good or bad the performance of the bank might be – bonuses continue to be awarded regardless. Needless to say, the banks declined to comment and one has to wonder at how much of this sort of thing can carry on without anyone, anywhere doing anything about it. I do not begrudge anyone decent pay for doing a decent job, but this is just obscene. More than 5,000 employees across the nine banks were paid more than $1 million each and 6 of the 9 banks paid out more in bonuses than they made in profit. Where are the shareholders? I would be screaming blue murder if I held shares in any of these companies. This withdrawal of substantial funds from the bank’s coffers is preventing them from functioning properly still, and making lending ever more difficult to come by, especially for those who need to home refinancing with bad credit.

For those asking the question “how do I refinance my home?” The simple answer is to approach a lender, but expect to need a far larger chunk of equity than was previously the case. On average, home prices in the United States have now fallen back to 2003 levels, which means that most people who purchased a home after that time now have a piece of real estate that is worth less than was paid for it. The difficulty this presents to these people is the probable lack of equity in the home. Lenders are going to require substantially more equity now, especially from those needing to refinance who have bad credit scores. You can forget about a 100% home equity loan, because they are a thing of the past, or rather, I should say a thing of the late 90s/early 2000s credit bubble.

Most lending institutions are going to require around a 25% equity level before considering offering refinancing, and this level of equity is the only way of obtaining a reasonable interest rate. Basically, the more equity in the home, the better the deal you will be able to negotiate. I would not even consider looking to refinance my home unless I was reasonably certain I had this much equity.

The other issue is falling real estate values. The banks have two issue now: 1, they are unable to reliably value your home, which makes it harder to determine the level of equity you hold, and 2, they are running scared and hanging on to their cash as they await the commercial property defaults, which will mean more substantial losses through 2010. Next year will be interesting that is for certain.