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June 24, 2020
The COVID-19 pandemic has created a number of economic uncertainties across the country. One bright spot we’ve seen is that interest rates remain low, which typically makes it is less expensive to borrow money or finance large purchases, such as cars and houses.
It also means a welcome opportunity for homeowners to potentially lower mortgage loan payments and even slash the number of years left to pay on your home, simply by refinancing your existing mortgage loan.
Many people have already taken steps to save. The Mortgage Refinance Index for the week ending April 10 was 10 percent higher than the previous week and 192 percent higher for the same week last year, according to a Mortgage Bankers Association report published on Money.com.
Benefits of Refinancing
Here are four ways refinancing might help you achieve your financial goals.
1. Reduce a fixed payment in an era of uncertainty.
Although mortgage rates change daily, they’re currently hovering in the low- to mid-3.00s. Lowering your monthly payment can create additional cash flow for other needs. Maybe you’re looking to boost your savings and increase financial security. Or, you want to use this opportunity to pay down other debts, like student loans and credit cards. Whatever your reason, a reduced mortgage payment means more money in your pocket.
2. Switch to a fixed-rate mortgage.
If you currently have an adjustable-rate mortgage (ARM), it probably came with a low starting interest rate – which meant lower monthly payments. However, your ARM’s interest rate (and your payment) may increase as time goes on. That means it might be time to refinance to a fixed-rate mortgage, and lock in a rate that will never change over the life of your loan.
3. Swap for a shorter mortgage.
30-year, fixed-rate mortgages tend to be the most common way to finance a home. However, as interest rates have fallen over the last year or so, you may find that you could refinance to a 15-year loan without your payment increasing significantly (or at all). That means you’ll pay off your home in half the time and pay much less in interest over the life of your loan.
4. Turn equity into a cash-out opportunity.
If you’ve got equity in your home – meaning it’s worth more than you owe on it – a cash-out refinance can help you get the money you need to make home renovations, consolidate debt, pay college tuition, or achieve any other financial goals. To make this happen, you’d simply replace the mortgage you have today with a new one that’s higher than your current loan balance. Then, you’ll withdraw a predetermined portion of the equity in cash at the time of closing.
Finding the Right Mortgage for You
Despite rates being low, there’s simply no one-size-fits-all mortgage program on the market. Our online mortgage calculator can help you determine if refinancing would be a good option for you. However, it’s essential to think beyond your monthly payment. You’ll also want to consider how much you’ll pay over the life of the loan (longer loans could mean you pay more for your home in the long run).
Here are a few other things to consider:
- Just as every house is different, so are financing programs. From fixed- and adjustable-rate mortgages to FHA, VA, and jumbo loans, your eligibility for each type of mortgage will determine the number of options you may have during the refinancing process. Be sure to speak with an experienced mortgage professional to see what’s available to you.
- Depending on how long you’ve been a homeowner and whether or not your home has increased in value, you may have equity in your home. This means your home is worth more than you owe on it. So, when you refinance, you can refinance the amount you owe on the home, or get a cash-out refi, which would give you an additional lump sum of money (a portion of your equity) to use as you’d like.
- Depending on the program you choose, there are costs to refinancing a mortgage loan. You may have a down payment, closing costs, and title fees. There are programs in which you can pay additional money up front to avoid paying points or for private mortgage insurance, which would lower your cost to refinance as well. It just depends on whether you have the funds or need to roll these costs into your mortgage loan.
Refinancing That’s Right for You
Ready to talk about refinancing? Rates change quickly, so visit us online or call (800) 649-0193 to speak with one of our friendly real estate loan specialists today.