Is Now a Good Time To Refinance Your Mortgage or Should You Wait?
Mortgage rates have been below 4% since May 2019, many homeowners have already taken advantage of the low rates. But according to a recent Lending Tree survey, as many as 49% of homeowners say they’re considering a mortgage refinance in the next year. The report estimated that over a third of homeowners have mortgages above 4% and 11% didn’t know what their rate was. The questions is, Is Now a Good Time To Refinance Your Mortgage or Should You Wait?
Slightly more than a third of the homeowners surveyed regretted missing the opportunity to refinance in 2020 when rates did hit their historic lows. But it’s not too late, you haven’t missed the boat. The only way we can know for sure that rates have hit bottom is after they start going up again.
Current rates for a conforming loan, 30 year fixed are as low as 2.25 with zero points. They’re very favorable to borrowers; some economists say when inflation is factored in, the rates are effectively close to zero.
Two Main Reasons People Refinance
While there are many reasons people choose to refinance their homes, two are among the most prevalent: to lower the payment or take cash out of the equity. Most reasons include:
- Lower the monthly payment
- Lower the interest paid on the loan
- Shorten the term of the loan
- Take cash out to pay off higher cost debt
- Take cash out of equity to improve their liquidity
- Remove someone from the loan as in a divorce
- Combine a first and second mortgage
- Replace an adjustable-rate mortgage
- Consolidate debt
There are some commonly held myths about refinancing among homeowners such as:
- You can only refinance your home once.
- You must refinance through your current lender.
- There should be 2% difference in the rate to justify it
- You need 20% equity to refinance
- Applications require a lot of documents
- You need cash to cover closing costs
- You won’t save that much by refinancing
- It’s free to refinance
If your current mortgage is an FHA, there is limited borrower credit documentation and underwriting program. The mortgage payments must be current, and the refinance must result in a net tangible benefit to the borrower such as a lower rate, lower payment or better terms. For more information, see Streamline or contact an FHA approved lender.
VA Loan Refi
VA has a similar program if your existing mortgage is a VA-backed home loan. The purpose is for a borrower to reduce their payments or make their payment more stable. They must certify they are currently living in or did live in the home covered by the loan. The Interest Rate Reduction Refinance Loan, IRRRL, may be available.
USDA Loan Programs
USDA also has a program for current USDA direct and guaranteed rural homebuyers who have been current on their payments for 12 months prior to requesting the loan refinance. No appraisal or credit review is required. There must be a minimum of 40% net reduction to the PITI payment. More information is available.
How Long Will You Stay in Your Home?
Before refinancing your home, determine how long you plan to stay. If the reason for refinancing is to save interest by getting a lower rate, you may accomplish that immediately. However, if you plan on selling soon, you may not be able to recapture the cost of refinancing.
Where is Your Break-even?
There are costs associated with refinancing regardless whether you pay for them in cash, or they’re rolled into the cost of the mortgage. These costs can range from 2% – 5% of the mortgage.
Is Now a Good Time to Refinance Your Mortgage or Should You Wait? Rates are low and No, it’s not too late to refinance your mortgage. If you would like a great lender referral, shoot us an email, [email protected] we’re here to help.