Mortgage rates tumbled again last week and homeowners nationwide are fired up about refinancing. From homeowners drowning in underwater mortgages to those who refinanced 30-year mortgages at rates that hovered just below 4% last October, all kinds of homeowners are trying to take advantage of these new historically low rates. While every household’s financial situation is different, record-breaking low interest rates, a competitive lending market and changes in some federal refinancing programs for struggling homeowners make now the best time to refinance your home mortgage.
More and more homeowners are working with financial planners and CPAs to see if refinancing their mortgage is a good idea. In some cases, families are reducing their rate from 5.12 percent to 3.87 percent, lowering their monthly payment by $100. In fact, some families are able to pull out enough money to add more money to retirement funds and take a cruise. Certainly, the biggest incentive to refinance is saving money. In addition to lowering monthly mortgage payments, refinancing gives homeowners the opportunity to eliminate the unpredictability of an adjustable-rate mortgage (ARM) by switching to a fixed rate, free up home equity cash for home improvements, college costs, medical bills and other expenses. In other cases homeowners have shortened the term of a 30-year mortgage to a 15-year mortgage, saving thousands in interest payments.
Another reason why many homeowners are refinancing is anemic returns on low-interest CDs and bonds. Freeing up monthly income by refinancing makes sense, especially for many homeowners in retirement. There’s certainly something to be said for being mortgage free in retirement. To determine if refinancing is right for you, consider how long you plan to live in your current home and calculate if the upfront costs associated with refinancing outweigh the monthly savings. If you plan to be in your home longer than two years, it usually makes sense to refinance.
It’s important to remember a number of factors affect the mortgage rate you’ll be offered. Lenders consider your credit score, loan amount and loan-to-value ratio (how much you owe on your mortgage compared to your home’s appraised value), the type of home you occupy (rates on second homes like condos, rentals and vacation homes are typically higher because they are higher risk to lenders) and the length of your loan’s term (i.e., 15-year vs. 30-year).
As you refinance your mortgage it’s also important to be aware of the way certain “no-cost” loans work. Despite no upfront costs to refinancing, meaning no cash out of your pocket, your closing costs, appraisal fees and credit checks are built into your interest rate. Lenders offer different rates and fees. While it behooves you to start the refinance process with your current lender or local loan originator, it pays to compare quotes from other lenders. If you’ve looked at refinance comparisons online and used mortgage calculators and you’re still not satisfied with the rates your current lender is offering, call Homestead mortgage. Our loan officers are experts about changes in the federal Home Affordable Refinance Program (HARP), FHA and VA refinance programs. These programs have lots of refinancing options available.