It's still an incredible time to get refinance
Refinancing has seen a boom over the past year, and it's no wonder why. With interest rates at all-time lows and homeowners sitting on record levels of equity, many borrowers have saved thousands.
What if you haven't refinanced yourself yet? It is not too late. According to data company Black Knight, over 15 million homeowners are still in the money to refect.
As mortgage expert Arjun Dhingra says, now may be the perfect time.
Check your refinancing eligibility. Start here (09/20/2021)
Hear Arjun on The Mortgage Reports Podcast!
Low prices won't last forever
Refinancing rates were pretty low last year. But as Dhingra put it in a recent episode of The Mortgage Reports Podcast, "The music will inevitably stop."
That point could come sooner than most homeowners hope.
The Federal Reserve has announced that it will reduce its purchases of mortgage-backed securities by early next year. When that happens, mortgage rates will be pushed up.
"By pulling back or taking off the training wheels – or not pouring enough coffee into the economy to prop it up and keep it caffeinated – it will inevitably cause mortgage rates to go up," Dhingra said.
"That will happen sometime in 2022, as (the Fed) announced."
What does this mean for homeowners? In essence, it means the clock is ticking at 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 interest rates rise again.
Do you fall into one of those buckets? If so, you can contact a mortgage advisor to discuss your options.
1. Your mortgage rate is 3.25% or higher
If your interest rate is still above this threshold, there is a very good chance that you can refinance into a new mortgage at a lower interest rate – and significantly lower.
According to Freddie Mac, the average interest rate on a 30-year mortgage loan was just 2.86% in mid-September.
If you were to go from 3.25% to 2.86% on a $ 250,000 loan, the move would save you significant savings, both on your monthly payment and over time.
Also note that these values are only averages. That means the most skilled borrowers – with lots of home equity and good credit ratings – can potentially get even lower interest rates.
2. You need a cheaper monthly payment
Do you need more cash flow? Are you struggling to pay the bills? How to deal with reduced hours or wages at work?
By refinancing into a mortgage loan with a lower interest rate or longer term, you can significantly reduce your mortgage payment. The monthly savings would free up cash and alleviate some of that financial stress.
Of course, the refinancing includes paying the closing costs. The upfront fees can be an obstacle for some homeowners with limited cash flow.
Fortunately, you don't always have to pay the closing costs out of pocket. It is often possible to include these fees in your loan amount or have the lender pay a slightly higher interest rate.
These refinancing strategies without closing costs reduce your savings. But if your new interest rate is low enough, you could still see some financial benefit overall.
3. You want to pay off your house faster
If you are about to retire or are making more money than you used to be, you may want to refinance yourself into a shorter term loan. The mortgage payments will be higher, but you'll have your home vacant and vacant much sooner (and avoid those costly home payments in retirement).
As an added bonus, the interest rates are often lower for shorter loan terms.
A 15-year fixed-rate mortgage usually has a lower interest rate than a 30-year loan, for example.
This doubles your savings potential over the term of the loan. You would save money by paying off the house sooner and save even more by lowering your mortgage rate even further.
4 You need cash now
You can also consider a cash out refinance, where you can replace your current mortgage loan with a larger one and withdraw the difference in cash.
"Right now homeowners have a record amount of liquidity and equity in their homes," said Dhingra.
“So when you need it to pay off debts or just to create a bit of an emergency reserve fund? These are all reasons why you should consider such a refinancing. "
Funds from cash-out refinances can be used for virtually anything – from medical bills to tuition fees, debt payments, and so on. 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 for homeowner refinancing is for a cheaper interest rate and lower monthly payment. But other financial goals can also be achieved with a new loan.
For example, you could:
Move from a variable rate mortgage to a more secure fixed rate home loan. Annual Mortgage When You Need to Cut Your Monthly Mortgage Payments Significantly Remove a former spouse or co-debtor from your current loan
Regardless of your goals, there are a few different mortgage companies that you should compare with before you refinance.
Mortgage rates vary widely depending on the lender. While interest rates are near record lows, not all lenders necessarily have great deals.
By comparing rates and fees from just 3-5 lenders, you can find a better deal on your refinance loan and maximize your savings.
Should You Refinance? Get individual advice
Today's mortgage refinancing rates are at historic lows. Home values have risen. And homeowners have more equity than ever.
This has created a unique situation where millions of borrowers can refinance into a lower interest rate loan, withdraw equity if they wish, and improve their overall financial situation.
If you are unsure whether refinancing is the right move for your budget, consult an experienced mortgage advisor. They can point you to the best strategies for your goals and budget.
Confirm your new plan (September 20, 2021)