Interest rates are nearing historic lows, which makes it an excellent time to look for mortgage financing. But, if you already have a mortgage, you may be wondering how you can take advantage of these deals.
That’s where considering a mortgage refinance comes in. Refinancing allows you to take out a new loan with better rates or terms, pay off your existing loan, and secure the advantageous rates for the rest of your loan’s life. Wondering if now is the time for you to take advantage of a refinance? These tips will help you make the right decision.
1. Your Loan Rate vs. Current Interest Rates
The biggest reason to refinance your mortgage is to take advantage of low rates. Rates in the United States are currently lower than anyone anticipated. In Fannie Mae’s June 2016 housing survey, consumers still thought there would be rate increases — although instead, rates have dropped.
In part, these dropping rates were spurred on by the news of Brexit. Increased fears of economic instability and stock market declines have made US real estate appealing to Europeans. Rates are expected to stay low at least until the end of the year, but, officials at the central bank are once again expected to raise the interest rate, possibly as soon as September, making now the optimal time to lock in deals.
2. Refinance Costs
It’s also important for you to weigh the costs of a refinance against your potential savings.
There are also closing costs for your refinance. Since you are taking out a new loan in order to pay off the existing one, you’ll need to proceed through the application, origination, and disbursement process again. That being said, if you can potentially lower your rate over a couple of points, it may be worthwhile to run the numbers to see your long-term savings. It is also important to note that you can close a refinanced mortgage at no, or low-cost depending on your financial situation and mortgage product. The best way to determine any closing cost would be to discuss your unique situation with an experienced loan officer.
3. Your Plans
Ultimately, it is worthwhile to refinance your existing mortgage if you can calculate a “break-even” point — where any additional costs of refinancing break even with new, lower payments. In most cases, this is within three years or less of receiving the loan. However, it is also worthwhile to consider your current loan term and your potentially new loan terms from a refinance, and how they fit into your short- and long-term plans for the property.
If you have a 30-year fixed-rate mortgage, and you can refinance to a 15-year term with even lower rates, it may be well worth it for you to shoulder any refinance fees because your savings over time will be much higher. Particularly for consumers who have adjustable-rate mortgages, now is a good time to restructure loans to fixed rates, taking advantage of near-record lows.
If you are ready to learn more about mortgage refinance options, contact us today to start an application.