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2021 Trends: Loan Refinancing

November 9, 2021
The COVID-19 pandemic caused so much economic uncertainty in 2020 but offered a bright spot: record-low interest rates. Those rates were even lower in 2021, but industry experts are predicting they’ll inch up in 2022.
Now is still a good time to at least consider if refinancing your mortgage or auto loan makes sense for you and your financial goals. In particular, if you have experienced improvements in your credit score since you first secured your loan, you could possibly gain significant savings through a refinance.

Why is loan refinancing often a good idea?

Interest rates have been historically low for a while, but many consumers still aren’t taking advantage of the refinancing opportunities available to them. Perhaps they don’t want to go through the process of applying for and securing another loan, but if it saves money, it’s worth the effort. If you have been hesitant, keep in mind that we’re always here to help you through the process and answer any questions you may have.
Have questions? Schedule a phone appointment with our mortgage experts.
Some of the many benefits of loan refinancing include:

  • Lower monthly payment: Refinancing could significantly reduce your monthly auto loan or mortgage loan payment through a reduced rate, an extended term, or both.
  • Reduced term: Depending on your loan balance, your monthly payment may go up, but you’ll pay off your loan sooner and possibly save on interest over the life of the loan.
  • Different type of mortgage: Homeowners might benefit by moving from an adjustable-rate mortgage (ARM) to a fixed-rate option. Or, you can switch your current ARM to another one with better rates.
  • Cash out: For homeowners who want to take money out of your house, for example, for a remodel or education expenses, a cash-out refinance is an option. Keep in mind that your new loan balance will be more than what you currently owe, and the rate could end up higher than your previous mortgage. You should also consider a home equity loan or line of credit as a way to take advantage of the equity in your home.

Is refinancing right for you?

Refinancing isn’t the best financial move for everyone. Depending on your goals, you might want to hold your course. Here are some reasons why you might not want to refinance:

  • You’re deep into your current loan. If you’ve held your loan for the majority of the term, you’ve already paid most of the interest.
  • The break-even point doesn’t make sense. For a refinance to make sense, your long-term savings should surpass short-term expenses. Compare the expense of closing costs with the cost savings over the life of the loan.
  • You’re planning to move soon. With closing costs, you may also lose money in the long run if you sell your home too soon after a loan refinancing.
  • You need to improve your credit. If your credit score has dropped since you took out the existing loan, you might not be eligible for the best interest rates. Even with a slight rate improvement, you still might come out behind when you factor in closing costs. Work on repairing your credit now, and look at refinancing again later.
Before refinancing your loan, take time to work through the numbers. Refinance calculators are a good place to start. Our experienced lending professionals are also ready to answer your questions. Simply schedule a phone appointment with our real estate team or send us an email to get started.

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