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Mortgage rates recently hit record lows, which means now is a prime time to refinance if you want to cut down your monthly mortgage payments.
The recent news of a coronavirus vaccine gave mortgage rates a slight increase, but experts say homeowners are far from missing the window to get a great refinance rate.
Read on as we dig into whether you should refinance right now, how you can do it with help from Homefinity, and other options you have for refinancing.
Should you refinance with historically low mortgage rates?
Before refinancing, you need to consider the closing costs for a new loan, your credit score, how long you plan to stay in your home, and your overall financial situation. Your monthly savings should offset the costs of refinancing. If you only plan to stay in your home for another few years, the costs may not be worth it.
Generally, you should take advantage of the historically low mortgage rates right now if refinancing will help you:
- Pay off your mortgage faster
- Save money
- Build equity
With such low rates, even those who have recently acquired mortgages might be able to benefit. As a rule of thumb, if you can lower your interest rate by one-half to three-quarters of a percentage point, you should consider refinancing. These percentages can significantly lower your monthly mortgage costs over time.
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How to refinance your mortgage with Homefinity
To refinance with Homefinity, you’ll be paired with a dedicated professional who will guide you through the process from start to finish.
With refinancing, you are replacing your current mortgage with a new one. You’re doing this for one of a handful of reasons, such as the following:
- To shorten the term of your mortgage
- To lower your monthly mortgage payment
- To take cash out from your home’s equity
Just like when you first bought your home, you’ll have to qualify again for the new mortgage so that it will match the needs of your current situation. You will have to prepare the same information and documents in order to apply, including income and employment documentation, your credit score, and Debt-to-Income ratio*.
*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income
What’s your credit score?
You most likely learned a lot about the importance of your credit score during your initial homebuying process, so hopefully by this point your score has improved and you can lock in a better rate. If not, get in touch with a loan officer for help and guidance.
Are you employed?
Your loan officer will need to make sure you can still make monthly mortgage payments. You will prove this with pay stubs and other documentation showing income and employment.
Do you have savings?
You don’t need a down payment this time around, but you still will have to pay some closing costs for the application, origination, appraisals, inspections, titles, and other fees to process your new mortgage. Your loan officer will disclose all of these fees to you, so nothing will come as a surprise. However, this is a large determining factor in whether the time is right for you to refinance.
Use our calculator to get a clearer idea of your personal situation. From there, you can discuss your specific questions and concerns with your loan officer.
Why are mortgage rates so low?
Mortgage rates have been dropping since spring due to the coronavirus pandemic and an intervention from the Federal Reserve, which began purchasing mortgage-backed securities to provide more credit in the marketplace.
Mortgage-backed securities are bundled mortgages that are sold to investors. The Federal Reserve is planning to continue with the policies until 2023 to keep rates low. Along with these policies, investors responding to the stock market are driving the rates. With the stock market heavily reflecting the coronavirus and other political and economic factors, rates are remaining low.
As previously mentioned, with the continually-shifting political climate, plus the hovering promise of a COVID-19 vaccine, rates increased a bit but are expected to remain low for some time.
What are other options to refinance?
Beyond refinancing for a lower interest rate and monthly payments, you can refinance to switch your loan type or use the equity to pay off debt or other major expenses.
Switch to adjustable-rate or fixed-rate mortgage
When you first got your mortgage, you may have chosen an adjustable-rate mortgage because it provided a lower interest rate than a fixed-rate mortgage. However, since these are subject to periodic adjustments based on current market rates, you might now decide to switch to a fixed-rate mortgage to eliminate the anticipation of future spikes.
Alternatively, since adjustable-rate mortgages offer lower monthly payments, you might decide to switch to an adjustable-rate now that the interest rates are falling (and if you aren’t planning on staying in your home for more than a couple years).
Cash out equity for debt or major expenses
A cash-out refinance allows you to tap into your home equity by replacing your existing mortgage with one that has a higher amount. The new loan pays off your current mortgage, and you get the remaining balance in cash.
Homeowners might decide to use this cash to consolidate debt, for home remodeling projects, or to pay for a large expense such as college tuition.
Swap to a conventional loan from an FHA
If you needed an FHA loan as a new homeowner because it was more affordable, now might be the time to switch to a conventional loan for lower insurance premiums. Or, if your built-up home equity is above 20%, you may not have to worry about paying mortgage insurance at all anymore.
This is just one of the loan type options you may have when refinancing your loan. Speaking to a loan officer can help you decide which option is best for you.
Reach out to Homefinity to get started
If you’re ready to take advantage of these historically low mortgage rates and refinance, contact us today to get started. Or, begin your application right now and we will contact you to continue the process.
Our team is ready and excited to help you take advantage of current market rates so that you can make your mortgage and your home as affordable as possible.
By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
Photo by Michael Longmire on Unsplash