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Is Now a Good Time to Refinance my Home Loan?

The question of whether the time is right to refinance a mortgage or not is one that homeowners often wrestle with. When interest rates are low, it’s difficult to know whether they’ll hold at that level and for how long. While many consider refinancing to be the best way to save money on a monthly mortgage payment, refinancing at the wrong time may actually end up costing you money. Knowing the right time to make a move is challenging.

Refinancing Defined

Refinancing a mortgage simply means that you take out a new home loan to pay off the old one. There are several reasons why you might want to do this. Lowering the interest rate is one of the most common. Refinancing to a lower interest rate reduces the monthly payment and eases the burden on your household budget. Shortening the term of the loan is another reason many homeowners refinance. The sooner you can pay your house off, the better because you’ll pay less in interest over the life of the loan. A third reason for refinancing is to switch the type of mortgage you have from an adjustable-rate mortgage to one with a fixed rate or vice versa. And finally, many homeowners decide to refinance because they need extra cash for some other use, such as debt consolidation or home repairs.

Assessing Your Decision

There are several things to consider when trying to assess whether it’s a good time to refinance or not. There are costs associated with refinancing. These costs – for items like an appraisal, title search, and application fees – can vary from 3% to 6% of the loan’s principal. Your decision on whether it’s a good time to refinance or not needs to take these costs into account. Also, you need to have a good feel for how long you plan to live in the house. If you’ll only be there another year or two, it may not be worth it, because you may not have time to recoup your refinancing costs.

A Closer Look at Refinancing

To determine whether now is a good time to refinance your home loan, we need to take a closer look at the reasons people refinance. There may be something here that will help guide you in your decision-making process.

Refinancing to Lower the Interest Rate

If interest rates are on the downswing, you might want to look into refinancing. Obtaining a home loan with a lower interest rate can help you save money by lowering your monthly payment. But how do you know if interest rates have dropped enough to make this worth your time? The rule of thumb generally states that if you can lower your interest rate by 2% or more, refinancing is beneficial. However, some financial experts say that a drop of only 1% is worth considering. This is why it’s important to know your current interest rate. Have a mortgage professional run the numbers for you to determine the impact of refinancing. 

There could be another benefit to lowering your interest rate. Many homeowners with conventional mortgages pay private mortgage insurance (PMI) on their loan if they didn’t make a substantial down payment. When you lower your interest rate, you build equity in your home faster because more of your monthly payment goes to the principal rather than interest. The faster you build equity, the quicker you’ll get to 20% equity, the magic number that allows you to drop the PMI, thus saving even more.

Refinancing to Shorten the Term

Shortening the term on a home loan, even by a few years, can save a considerable sum over the life of the loan. However, if you don’t lower your interest rate at the same time, your monthly payment could actually go up. If you can afford that, it may still be a wise thing to do because you’ll save money over time. The ideal scenario is to lower both the interest rate and the term when you refinance. You may be able to shave years off the loan while keeping your monthly payment very nearly what it is currently.

Refinancing from an Adjustable Rate to a Fixed Rate – or Vice Versa

Often, adjustable-rate mortgages start with lower interest rates than fixed-rate mortgages. But over time, the interest rate adjustments may climb to the point that they overtake the rate offered on a fixed-rate mortgage. When this happens, it’s a good time to consider refinancing. Refinancing to a fixed-rate mortgage eliminates the uncertainty that comes with fluctuating interest rates. Conversely, if interest rates fall below the rate on your fixed-rate mortgage, you may want to consider refinancing to an adjustable-rate mortgage and ride the rates downward. This is an especially good strategy if you plan on living in your home for only a few years.

Refinancing for Extra Cash

Refinancing can be a viable option if you need extra cash for major expenses like remodeling or home repair projects, paying off or consolidating consumer debt such as credit cards and car loans, or paying college expenses. Refinancing your home loan is an excellent way to tap into the equity you’ve built up in your home and put it to good use. But make sure you’re smart about the decisions you make. A mortgage loan officer can help you weigh the pros and cons of refinancing to determine whether it’s the best option for your situation.

Homestead Financial Mortgage is Here to Answer Questions

Knowing the right time to refinance is challenging. Homestead Financial Mortgage is here to help you weigh the options. Our goal is to help homeowners understand the refinancing process and figure out whether the time is right to refinance. We work with customers in St. Louis, MO, Kansas City, MO, Overland Park, KS, Godfrey, IL, and Glen Carbon, IL, as well as the surrounding metro areas. Give us a call or stop by one of our branches to talk with our mortgage experts. We’ll help you decide whether now is the right time for you to refinance.

An important part of any home buying transaction is the appraisal. Home appraisals help establish your home’s market value, the sales price it would likely bring in an open and competitive real estate market. If you plan to use your home or other real estate as security for a loan, mortgage lenders will require an appraisal to make sure the property will sell for at least the amount of the loan. While many real estate agents use a comparative market analysis (CMA) to help home sellers determine a realistic asking price, a real estate appraisal and CMA are two different things. A real estate appraisal is much more detailed than a CMA and the only valuation report a mortgage lender will consider when it comes to whether or not they’ll lend a prospective borrower money. If you plan to apply for a mortgage in the near future, equipping yourself with the following facts about real estate appraisals will make the appraisal process less intimidating. Continue reading “What Mortgage Lenders Wish Borrowers Knew About Home Appraisals”

In “Securing a Home Loan with Bad Credit – Part I” we explored mitigating factors borrowers should consider highlighting when it comes to securing a home loan even when you have bad credit.  In addition to highlighting the financial assets you do have, your job security and proving your self-discipline as a saver rather than a spender, there are four other factors you should also highlight.
Continue reading “Securing a Home Loan with Bad Credit – Part II”

When it comes to securing a home loan today one of the biggest misconceptions is that you need to have an excellent credit rating, a large down payment and low debt-to-income ratio with steady significant income.  But the truth is home ownership can happen even if you have bad credit due to a foreclosure or bankruptcy or if you have previously been turned down for a loan.  Here are some things to keep in mind.
Continue reading “Securing a Home Loan with Bad Credit – Part I”

So you have some extra dollars and want to know what to do with it? For the purposes of this article, lets assume “spending it” isn’t an option. What are the benefits if I pay down my mortgage vs investing the extra money? When you evaluate the numbers, it boils down to emotion vs logic. Continue reading “Should I Pay Down My Mortgage with Extra Money or Invest?”

When making a decision on where you should get your mortgage, there a lot of choices. These choices can be broken out into 2 different organizations; a mortgage bank or a bank who does mortgages.

So you’ve finally decided to take the plunge and buy your first home. You know you need a mortgage, but everyone you talk to seems to have a different opinion about who to contact for that. It’s nearly as overwhelming as the selection of homes you have to choose from. How do you know where to start?

Here at Homestead Financial Mortgage, we like to help educate our customers on the home-buying process. That means making sure they know what their options are and are comfortable with the process. Here’s a short primer on the differences between a bank and a mortgage lender.

Let’s Start with the Basics

Mortgage lenders come in all shapes and sizes. Your local bank is a mortgage lender. So is the credit union down the street. And the mortgage company on the other side of town can provide you with a mortgage, too. Let’s start by defining the term mortgage lender.

The term “mortgage lender” is actually a category that encompasses several different financial entities. A mortgage lender is an institution that loans you money to buy a house. Of course, you’re expected to pay the loan back with interest. That’s a given. But the basic idea is that a mortgage lender makes it financially possible for you to buy a new home. Simple enough, right?

Your Bank is a Mortgage Lender

Your local bank is a mortgage lender. If you meet the debt to income requirements and fit within their lending guidelines, your bank will make you a loan so you can buy your first house. But that’s not the only thing a bank does. Banks also provide other financial services to both consumers and businesses. Checking and savings accounts, automated teller services, and online bill payment services are good examples. In other words, mortgages are not your bank’s first or only priority. And while you may be able to get a good deal on the interest rate or length of term on a mortgage if you have a long-standing relationship with your local bank, processing your mortgage will take a backseat to other financial services. That’s just the way banks work.

While your bank may make the loan to you, it may not keep the loan on its books. Many banks do service their own loans, but others sell their mortgages to third-party loan servicers. When this happens, it doesn’t change the terms of the loan, but you will be making payments to someone else – someone you probably have never heard of. So much for that long-term relationship.

The Local Credit Union is Also a Mortgage Lender

The credit union down the street may also be willing to give you a mortgage, but you have to become a member of the credit union first. Credit unions are not-for-profit organizations, and you have to be invited to join, kind of like a country club. Credit unions are affiliated with a designated sub-segment of the population, i.e., teachers or employees of a specific company. Every credit union has its own set of “owners.” This makes it more challenging to get started, but if you can get in, the credit union may be able to offer you decent terms on a mortgage.

The Mortgage Company Across Town Might Be Your Best Bet

Mortgage companies are direct lenders, meaning they originate the loan, fund it themselves, and then carry the loan on their books, servicing it over the entire life of the loan. Mortgage companies specialize in loaning money to people so they can buy a new home; that’s all they do. So when you work with a mortgage company, you’re likely to have access to more options and different types of loans than if you went through a bank or credit union. Mortgage companies handle the entire transaction from pre-approval to the underwriting process and beyond. You’ll even make your payments to the mortgage company. It’s a one-stop shop for mortgage loans. And that makes it easy for potential home buyers, especially if this is your first time through the process.

Working with a mortgage company rather than a bank or credit union can be a significant advantage for home buyers. With a mortgage company, you know you’re working with experienced professionals; mortgage loans are all they do. This means they can work more quickly and get your mortgage processed faster. In today’s fast-paced real estate market, that’s a huge bonus. Many houses that are listed are here and gone before first-time buyers can get themselves organized and pre-approved through a bank. Mortgage companies streamline the process, giving buyers a better shot at getting the home they have their heart set on.

So Which Is Better for You?

You’ll have to decide for yourself which type of mortgage lender is right for you. Banks, credit unions, and direct mortgage lenders can all get the job done. The question is whether they’ll get it done fast enough for you to get the house you’ve picked out. Mortgage companies have a distinct advantage in this category because mortgages are all they do. They also have an edge when it comes to unique situations like rental properties or multi-family units. Mortgage companies have access to many mortgage products and can satisfy the needs of most mortgage hunters. They’ve seen it all…and they know how to structure a deal to fund it.

To Conclude:

A mortgage needs a personal touch without hurting efficiency. The mortgage banker, due to its primary focus being on mortgage is uniquely positioned to provide that service at the same price as a bank. If you want to learn more or reach out to us, please feel free to do so here.

Homestead Financial Mortgage Wants to Be Your Mortgage Company

At Homestead Financial Mortgage, our goal is to help you get into the home of your dreams, whether you’re a first-time home buyer, you’re expanding and upgrading to a larger home, or you’re downgrading now that the kids are in college. We’ll help you find the best interest rate and terms. Stop in and see us today to get started. You’ll find our branches in St. Louis, MO; Overland Park, KS; Glen Carbon, IL; and Godfrey, IL. We’re always happy to answer your questions and help you get pre-approved for a mortgage without hassle. You’ll be moving into your new home in no time!

For any of us interested in qualifying for a mortgage in the near future you should also pay attention to how we are required to file our tax returns. With April 15th fast approaching, here a some tax return pointers to make sure your return doesn’t keep you from qualifying for a mortgage. Continue reading “5 Tax Return Pointers to Help You Qualify for a Mortgage”