January 4th, 2019 8:57 AM by Jackie A. Graves, President
FREEHomePurchaseAnalysis Today'sMortgageRates FREEHomeRefinanceAnalysis
Everyone loves saving money, especially when it comes to most
homeowners’ largest monthly expense: the mortgage. Maybe you’re looking to cut
that bill by refinancing your mortgage. Or maybe you’re thinking about
refinancing because you’re afraid interest rates are heading up and it’s your
last chance to grab a better deal.
rates are still historically low and you may have plenty of loan options, but
take some time to figure out whether refinancing is your best move right now.
How long you plan to stay in your home, your financial goals and your credit
profile all play a role in your decision about whether — and when — to
To get an idea of when it makes
sense to refinance your home, we talked to two lending
experts: Katie Miller, vice president of mortgage lending with Navy Federal
Credit Union in Vienna, Virginia, and Tony Julianelle, Denver area sales
manager for home mortgages with Wells Fargo.
are a few questions you should ask yourself to help decide whether now is a
good time to refinance:
When the Federal Reserve
announced in December 2015 it was raising short-term interest rates by 0.25%,
many people feared a jump in mortgage rates.
But mortgage rates don’t move in lockstep with short-term rates, Miller says.
other words, don’t expect a quick rise that will price you out of refinancing
your home anytime soon. There’s still time for you to pay off high-interest
debts or boost your credit score — and better position yourself to qualify for
a good refinance loan.
are still quite low, and we’re seeing a good number of refinance applications
coming in,” Miller says. She adds that many people who purchased at the market
peak only to see housing prices crash have finally regained enough equity in
their homes to benefit from a refinance. “We are seeing more people take
advantage of low interest rates with cash-out refinancing to pay for home
Mortgage rates are forecast to
increase slightly in 2016, but until they reach 5% or more, Miller says, you’ll
likely get a competitive rate as long as your credit score is good and you show
proof of steady income. (Tip: Using a mortgage calculator can help you get a
sense of what kind of rates you might expect.)
calculate your potential savings, you’ll need to add up your costs of
refinancing, such as an appraisal, a credit check, origination fees and closing
costs. Also, check whether you face a penalty for paying off your current loan
early. Then, when you find out what interest rate you could qualify
for on a new loan, you’ll be able to calculate your new monthly
payment and see how much, if anything, you’ll save each month.
also want to consider whether you have at least 20% equity in your home —
the difference between its market value and what you owe. Check the
property values in your neighborhood to determine how much your home might
appraise for now. Don’t rely on online home value estimates alone
— they’re often way off — but online sites can point out recent
sale prices for similar homes near you. A local real estate agent can give you
an idea of what your home’s worth, too.
equity amount is important because lenders usually require you “insure” the
mortgage — protect their financial interests in the event you default — if you
have less than 20% equity. Mortgage insurance is not cheap and is built into
your monthly payment, so be sure you wrap it into your calculations about
you add up all the costs of a refinanced loan, you can compare your “all-in”
monthly payment with what you currently pay.
spend an average of 3% to 6% of the loan amount in closing costs, so you need
to figure out how long your monthly savings will go toward recouping those
costs. For instance, it would take 30 months to break even on $3,000 in closing
costs if your monthly payment drops by $100. If you move during that 30 months,
you’ll lose money in a refinance.
about whether your current home will fit your lifestyle in the future. You’d be
surprised, but a lot of people don’t. If you’re close to starting a family or
having an empty nest, and you refinance now, there’s a chance you won’t
stay in your home long enough to break even on the costs.
who are deep into repaying their mortgages should also think carefully before
jumping into a refinance, Miller says. If you’re already 10 or more years into
your loan, refinancing to a new 30-year or even 20-year loan — even if it
lowers your rate considerably — tacks on interest costs. That’s because
interest payments are front-loaded; the longer you’ve been paying your
mortgage, the more of each payment goes toward the principal instead of
your prediction on how long you’ll stay in your current home and then think
about the details of your current mortgage. How those factors play off each
other could have a role in your decision.
say you bought a home with an adjustable-rate mortgage for an initial term of
five years at around 3%. You plan to stay put for several more years. If you’re
nearing the time when the adjustable rate can reset and move higher, you
might benefit from refinancing to a 20- or 30-year fixed-rate mortgage to get
a set interest rate that won’t fluctuate.
Conversely, if you know you’ll be
moving in a few years, refinancing to an ARM from a
longer-term fixed loan can help you save more money because lenders offer lower
interest rates on those loans.
your credit score and payment history improved since you got your mortgage? If
so, you might qualify for a better interest rate, which will help you save more
per month and break even sooner.
the other hand, hitting a rough financial patch (or two) can do a number on
your credit, and that affects your ability to qualify for a refinance loan and
also the rate you’ll get. If you’ve been late on a credit card payment, bought
a new car or taken on student loans, your credit score might be lower than it
was when you took out your original loan. Before refinancing, you might want to
do some credit repair.
you’re struggling with payments, automate everything so you don’t miss any,”
Julianelle says. “Also, look at the ratio of your outstanding credit card
balances to the credit limit. If your credit report shows outstanding balances
near the limit, that shows high usage. You want to keep that ratio as low as
possible by paying off your credit card balances each month in full, because
that can make a big difference in whether or not you qualify for a new loan.”
smart move: Figure out how much you pay in credit card and other high-interest
debt each month. See if the money you’d spend on closing costs would be better
spent paying down those bills down instead of refinancing your home. Or,
perhaps commit to using the monthly savings you reap from a refinance to pay
you dive headfirst into refinancing, sit down with a lender and do the math to
see if you’d break even in a period of time that makes sense. Take a thorough
inventory of your financial goals, and think about how your current home will
fulfill future space and location needs.
Don’t forget that if you’re
struggling to pay your mortgage each month and you don’t qualify for a
conventional refinance loan, Fannie Mae and Freddie Mac refinance programs can
lessen your financial burden.
money on your mortgage helps you build wealth, and who doesn’t love doing that?
If now isn’t the ideal time to refinance, keep plugging away on your current
mortgage payments and keep your credit in good order so you’ll be ready to
strike when the time is right.
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