Even though interest rates are starting to go up, they’re still relatively low at this point. Many people are going back and forth as to whether or not they should try to refinance their mortgages. Here are some pros and cons of doing either action.

Let’s first look at the pros.

One pro, of course, is that your monthly payments would be drastically reduced. Depending on where it is now, you could literally save a few hundred dollars a month, which wouldn’t be a bad thing.

Another pro is that, depending on how long you’ve been paying on your house, you could end up with a nice little cash windfall that you could put to something else. Paying down some other bills or doing some home improvement projects aren’t unheard of. Some people have even taken vacations with the extra money. Of course the smart thing would be to put it back into the payments to see if you can get an even lower payment, but most people don’t think like that.

Now let’s look at some cons.

The first con is that if you’ve already been paying on your home 10 years or more you start all over again. What you might be able to do is roll over into a 15 year plan at a lower interest rate, which will probably cost you a little more than what you’re paying now depending on what your previous interest rate is, but if you could get even slightly lower or the same amount it might be worth looking into. Otherwise, you’re just adding time onto your mortgage.

Another con is that you might not get the change, in which case you now have a negative tick on your credit report. Just because I think credit scores are worthless doesn’t mean that everyone else thinks so, which means this is a hard one to consider.

These are the major decisions you must consider before deciding to go one way or the other. Most analysts will tell you to go for it; I’ll just say think about it seriously before taking the plunge.

Right now, interest rates on home mortgages are at the lowest level in decades, if not ever. If you can get it, going for a lower interest rate might be the most beneficial thing you can do to help you get over some financial humps and get things done.

A real life story came up yesterday while my wife and I were at a regional farmer’s market. There’s one lady there who makes the best chocolate chip cookies, and we always buy from her. She had an extra big smile and started telling my wife her story about being approved for refinancing her mortgage.

She went for a 15-year mortgage, where the interest rate was 3.75%. I don’t know how the rest of this actually worked because I thought it would be rude to ask, but she was granted the new mortgage, it earned her enough money so that she was able to pay for a new roof for the home and some other improvements she’d been wanting to do, and her monthly payments actually went down $350 a month.

I’m not sure where she started from, but I’m assuming she must have had a much higher interest rate than the 5.75% my wife and I have after we took advantage of what at the time were lower interest rates than what we’d bought our house at. We ended up reducing our payments about $200 at the time, but didn’t get the other money bonus this lady did. Then again, we’d only had the house 2 years at the time, so there was no real equity built up either.

At the very least if you have some equity in your home and an interest rate higher than 7%, it’s worth exploring your options to see if there are both money and some savings to be had.

There is a post on a blog called New Homes Section, Illinois, titled 5 Things To Know About Buying A House. It’s a pretty good article if I say so myself, but I think there are more things to add to this list, which I’m going to do now.

1. Don’t get pushed into buying a house if you’re not feeling it. Realtors are taught that many people will suffer from what’s known as “buyer’s remorse”, so they’ll work hard to encourage you on a house that you might have some hesitations on. Stick with your feelings because a home investment is not only costly, but it’s a long deal, the longest arrangement you’ll ever enter into other than marriage.

2. Make sure you send in your own inspector and make sure you understand what they’re telling you about a property. Realtors will recommend inspectors for you, and I’m not saying that they’ve got a cozy relationship with each other, for the most part, but you’ll do better finding your own. Once you do that, when they give you a report make sure you ask them what they mean by some of the things they say. Often they won’t give a red mark to something, but they’ll indicate something that’s less than being totally positive. Those types of things could end up costing you a lot of money later on, so it’s best to know up front what’s going on.

3. Even with disclosure laws, you might not hear about every problem a house has. A homeowner might not tell you that the roof leaked during one major rain storm, especially if it doesn’t leak every time it rains. The same goes for flooding in the basement. If you ask the question and get a false answer, which you’d know later on, if you documented it you’ve earned some rights of protection. If you don’t ask questions, it’s all on you.

4. Know your own credit report. Here’s the thing. Even if you’ve been approved for a loan by a realtor, the mortgage rate you get might not be up to snuff because of your credit rating. Of course, those of you who read this blog know how I feel about credit scores in general, but lenders still use these things, and you might not get that wonderful 5% mortgage rate you’ve been hearing about if they’re worried about your credit viability.

5. Even if you’re having a house built, make sure you have it all down on paper. I learned this lesson from my mother, who dealt with a salesperson that ended up having a bad reputation. He promised my mother a lot of things and she made him write them all down. When the company fired him and came to her saying she couldn’t get all those things, she produced the paper that he’d signed promising those things, and she got them, to their dismay.

On the heels of Capmark Financial Group filing for bankruptcy last week, this week saw another super huge commercial real estate lender file for bankruptcy.

This time it’s CIT Group, a lender to way more than 100,000 small and medium sized businesses. This is one of the largest companies in history filing for bankruptcy, yet at the same time, it looks like they also already have a plan in place to start paying creditors and get out of bankruptcy by the end of the year.

Of course, it doesn’t help the rest of us to know that the federal government gave them $2.33 billion to help bail them out of trouble, and that it didn’t work. Seems that the record for bailing out banks and lenders didn’t work out all that well. At its peak in 2007, CIT’s shares were trading at around $60 each; now they’re trading at 72 cents, barely above the cutoff.

The thing about these people is that, by filing bankruptcy, oddly enough it’s going to force some of their creditors to pay them money, while shedding around $10 billion in debt. The company is still giving out loans, and plans on giving out loans, while it’s in bankruptcy, as some of their subsidiaries are doing well enough to operate on their own. I have to admit that this seems reckless and conceited, and it may explain why the current CEO is on his way out, having resigned to be effective at the end of the year.

That’s two big commercial real estate lenders in two weeks. I’m afraid of what’s still to come. Now, are you still believing these people who are saying the economy is improving?

Here’s another topic I’d have sworn I’d written about, which I’m now realizing I haven’t, and it’s important enough to bring up for those folks who might be thinking about it.

In general, short selling is the act of selling one’s home for less than what it’s worth. There are a few reasons one might want to do something like this.

First, couples that are divorcing and want to get out from a joint obligation will sometimes do this. For years, this was the most common reason for short selling.

Second, someone who decides they just don’t want the house anymore, possibly because someone passed away and they want to leave. Many times it’s other family members who have inherited a house that will want to short sell it to try to get out from under the obligation.

These days, more people are thinking about short selling their homes because they find themselves unable to keep up with the payments, or because the worth of their homes has deteriorated because of the terrible housing market. Though this isn’t in effect everywhere, states like Florida and California and Arizona have seen many homes and communities lose at least 50% of their worth if not more. Oddly enough, in some of these cases, the amount of monthly mortgage payments they were making has gone up, not down, while property taxes have remained high because communities are reluctant to do new assessments for fear of losing tax money.

Add to this the lousy job market, and the possibility of more job losses coming, and it’s a scary proposition all around.

Many of these people find themselves with two choices; foreclosure or short selling. Neither one of these is a great option, and offers something different for homeowners to consider.

For instance, if you’re in a bad way, but you really believe that your finances will take a turn for the better, going through the foreclosure process might be the way to go. Foreclosure takes a long time before banks can force people out of their homes, and if you suddenly are able to pay your mortgage again, you can make those payments and the foreclosure process stops. Sure, it hits your credit report, but you at least have your home again and can always write an explanation of why you went through the process.

However, if you don’t see a way out of it, short selling might give you some kind of chance. If you can short sell your home close to what’s owed, the bank might accept that as payment in full and you get to walk away from your home without a scratch. The bank might not even file anything with the credit reporting companies. If you have to set payment arrangements with the bank for the difference, though, or just walk away without even thinking about making those payments for the difference, it will hit your credit report. Depending on how much you still care about credit reports and credit scores, as much as I talk against them, is another matter, but having a short sale on your report is almost as bad as having a foreclosure on there. The difference is that a foreclosure will stay there for 10 years; time varies for short sales.

Of course, that’s if you can sell your home in the first place. Many other homes in the neighborhood would have probably already been foreclosed upon or given up, which means you’d be competing in price with those homes. What might be in the favor of someone still in the home is the perception that the home will be better maintained than a home that was given up. It’s amazing the type of anger that’s been shown by some of these people who have left some pretty magnificent homes.

And one other thing; many real estate people are just getting their hands around what short selling is all about. When you may have had one every couple of years and suddenly you’re getting 20 a month, the process can be scary to agents as well. So, you’ll have to shop around for the right person to help you in short selling your home. Don’t even waste time trying to do it as a FSBO.

And that’s a quick primer on short selling. Good luck; I personally hope no one has to go through it.

A couple of weeks ago, I wrote on an impending problem, that being a collapse of the commercial real estate market. Well, in today’s CNN Money report, there’s a story talking about luxury hotels starting to default on loans, and how that could spell disaster for the travel and vacation industry.

I can’t say I’m surprised by this, only mad at myself for not thinking about it earlier than now. Hotels have been slashing prices in vacation spots, especially out west, trying to lure visitors in while things were going bad financially. Unless they were already sitting on large pools of cash, there was no way that some of these places could keep up, even if they could fill up, because many of them slashed prices by more than 70% at times. Yes, a great deal for the consumer, but only if they could take advantage of it, then spread around a little bit of that cash while they were at it.

When I was in Reno in December, I saw first hand how casinos out that way were struggling to get people into the place just to gamble; never even thought about how much had to be going through their fingers in missed registrations. And, for casinos, you can only lay off so many people and continue running. It has to be the same for luxury hotels, since part of their appeal is always being able to immediately take care of their top paying customers.

This doesn’t mean that I won’t still look for the best deal when I head out of the area; it just means that I hope, when I do go, that I can still get a nice room wherever it is I go.

By now, everyone knows that the housing market has been bad. Even here, I’ve talked about the problem with the housing market.

It’s now time to get ready for the next danger; the commercial real estate market is also on the verge of collapse. That’s what came from a report by the Joint Economic Committee, headed up by New York state congresswoman Carolyn Maloney. Their study concludes that if the banks don’t find a way to rework commercial loans by next summer, business owners could end up defaulting on properly to the tune of $700 billion; you read that correctly, and that’s considered a low estimate. With other losses, it could get pretty close to one trillion dollars; ouch!

Right now, commercial real estate debt is sitting around $3.5 trillion dollars. Businesses are suffering the same kinds of losses that everyone else is, and even though many businesses have pared down staff to try to keep up with the fast decreasing economy, they’re finding themselves having problems paying for the physical properties they have now. Even large mall owners are having problems, as one of them, General Growth Properties, the second largest mall company, filed for Chapter 11 bankruptcy protection in April; that’s scary.

Locally, we’re hearing that our biggest mall, right now called Carousel Center, but which was supposed to eventually become DestinyUSA, which would have been the third largest mall in the nation, has had to stop building because Citigroup has decided they don’t feel comfortable with what’s going on, and has stopped giving out the loans. In an interesting move, the mall property owner is suing them in state court, trying to get the courts to force Citigroup to give them a loan; that should prove to be interesting. If it gets passed, I think I’ll sue Donald Trump for the same thing.

Why is commercial real estate important to the rest of us? How about the estimated 9 million jobs that could potentially be lost if these businesses have to close their doors? If we thought unemployment was bad already, think about averaging nearly 800,000 people filing for state unemployment benefits being added on to what we’ve already lost?

I hate to be the bearer of bad news like this, but as Dr. Phil says, we can’t fix what we don’t acknowledge. The government is trying to do something, but it may not be enough. Frankly, this is probably scarier than what was going on in December and January; it’s going to take more than a stimulus package to pull us out of this mess.