Should I refinance now? | Top 4 Reasons to Refinance (Podcast)
It’s still an amazing time to refinance
Refinancing has exploded over the past year, and it’s no wonder why. With rates at historically low levels and homeowners sitting on record amounts of equity, many borrowers have saved thousands of dollars.
What if you haven’t refinanced yet? It is not too late. According to data firm Black Knight, more than 15 million homeowners are still “in the money” for refi.
As mortgage expert Arjun Dhingra says, maybe now is the time to do it.
Check your eligibility for refinancing. Start here (September 20, 2021)
Listen to Arjun on the Mortgage Reports Podcast!
Low rates won’t stay forever
Refinancing rates have been quite low for the past year. But as Dhingra said in a recent episode of The Mortgage Reports Podcast, “Inevitably, the music will stop.”
This point can happen sooner than most homeowners hope.
The Federal Reserve has announced that it will start reducing its purchases of mortgage-backed securities by early next year. When that happens, mortgage rates will go up.
âBy removing or removing the drive wheels – or not injecting as much coffee into the economy to keep it sustained and caffeinated – it will inevitably lead to a rising trend in mortgage rates,â Dhingra said.
âThis will take place in 2022, as [the Fed has] announcement.”
What does this mean for owners? Essentially, this means time is running out with today’s low rates.
Start Comparing Refinance Rates (September 20, 2021)
4 reasons to refinance now
According to Dhingra, there are four categories of homeowners who should consider refinancing now, before rates start to rise.
Do you fall into one of these buckets? If this is the case, you may want to contact a mortgage advisor to discuss your options.
1. Your mortgage rate is 3.25% or more
If your rate is still above that threshold, there’s a good chance you can refinance a new mortgage with a lower rate – and considerably further down to that.
The average 30-year mortgage rate was just 2.86% in mid-September, according to Freddie Mac.
If you fell to 2.86% from 3.25% on a $ 250,000 loan, the move would save you a lot, both on your monthly payment and over time.
Also keep in mind that these rates are only averages. This means that the most qualified borrowers – with home equity and high credit scores – can potentially earn even lower interest rates.
2. You need a more affordable monthly payment
Need more cash? Having trouble paying the bills? Dealing with reduced hours or wages at work?
By refinancing your mortgage with a lower interest rate or a longer repayment term, you could significantly reduce your mortgage payments. The monthly savings would free up money and alleviate some of that financial stress.
Of course, refinancing involves paying closing costs. Upfront fees can be a barrier for some homeowners with limited cash flow.
Fortunately, you don’t always have to pay closing costs out of pocket. It is often possible to include these fees in your loan amount or have the lender pay them in exchange for a slightly higher interest rate.
These refinancing strategies with no closing costs will reduce your savings. But if your new rate is low enough, you could still see an overall financial benefit.
3. You want to pay for your house faster
If you are nearing retirement or earning more money than before, you may want to refinance a shorter term loan. Mortgage payments will be higher, but you’ll own your free, cleared home much sooner (and avoid those expensive housing payments in retirement).
As a bonus, shorter loan rates are often lower.
A 15 year fixed rate mortgage will usually have a lower rate than a 30 year loan, for example.
This doubles your savings potential over the life of the loan. You would save money by paying off the house sooner and even saving Following by further lowering your mortgage rate.
4 You need the money now
You can also consider cash-out refinancing, which allows you to replace your current mortgage with a larger loan, recovering the difference in cash.
âRight now, homeowners have a record amount of cash and equity in their homes,â Dhingra said.
“So what if you need it to pay off debt or just to create a small emergency reserve fund?” These are all reasons why you should consider this type of refinancing.
The funds from cash refinances can be used for virtually everything from medical bills and tuition fees to paying down debt and more. You can even use the money as a down payment on a new home or vacation property.
Other good candidates for mortgage refinancing
The most common reason homeowners refinance is for a better rate and a lower monthly payment. But a new loan can also help you reach other financial goals.
For example, you could:
- Switching from an adjustable-rate mortgage to a more secure fixed-rate mortgage
- Cancel mortgage insurance on an FHA or USDA loan by switching to a classic loan without PMI (20% equity required)
- Switch from a 15-year mortgage to a 30-year mortgage if you need to significantly reduce your monthly mortgage payments
- Withdraw an ex-spouse or co-borrower from your current loan
Whatever your goals, be sure to compare a few different mortgage lenders before you refinance.
Mortgage interest rates vary a lot among lenders. So even though rates are near their all-time low, not all lenders are necessarily offering good deals.
By comparing the rates and fees of just 3 to 5 lenders, you might find a better deal on your refinance loan and maximize your savings.
Should we refinance? Get personalized advice
Mortgage refinancing rates today are at historic lows. Home values ââare on the rise. And the owners have more net worth than ever.
This created a unique situation where millions of borrowers could refinance into a lower rate loan, cash in equity if they so choose, and improve their overall financial situation.
If you’re not sure whether refinancing is the right decision for your household, contact an experienced mortgage advisor for help. They can point you to the best strategies for your goals and budget.
Check your new rate (Sep 20, 2021)