Should You Consider Refinancing Your Mortgage?

On July 16, mortgage giant Freddie Mac announced that the average interest rate for a 30-year home loan had fallen to 2.98% and the average interest rate for a 15-year home loan had declined to 2.48%.

A 30-year mortgage at less than 3% interest? A 15-year mortgage at less than 2.5% interest? These lows were historic milestones, unseen in the 49 years of Freddie’s weekly surveys. It’s unclear how long this low-rate environment may persist.

Are you considering refinancing your mortgage? Keep in mind that just two summers ago, the average interest rate on a 30-year was in the vicinity of 4.5% while the 15-year, fixed-rate mortgage hovered around 4%.

Now may be the time to revisit your current mortgage to determine if a traditional refinance is worth it.  A traditional refinance is one in which you swap your current mortgage for a new one.  But first and foremost, we would suggest deciding on the goals you are trying to achieve with your refinance. Are you looking to shorten the duration of your loan and pay it off as soon as possible, perhaps before you retire?  Are you wanting to lower the monthly payment to help with current cash flow?  Are you trying to move from a variable rate to a fixed rate so you don’t have to worry about your payment going up in the future?  Maybe you are trying to achieve all three!

Here is a loan calculator (one of many available to use on the Web) to help you with your assessment Mortgage Calculator.  Contacting a mortgage lender will give you the most accurate and up to date information available, but you can use the loan calculator to get you started on your initial research.

Refinancing your mortgage may be a challenge. Loan demand is high right now, and some lenders have raised their standards amid the current economic uncertainty. Some factors that a lender will consider include your credit score, work history, and debt-to-income ratio.  Lenders are more strict today than in the past, so an unfavorable score or ratio may be an issue.

There are costs associated with refinancing, whether you are buying points to lower your interest rate or paying for an appraisal on your property, there will be costs.  Is the cost of the loan worth it?  Will you save at least this amount of money in interest payments over the life of the loan?  Another thing to keep in mind is that you will need extra cash at closing for these costs.  Do you have the time to dedicate to researching your best options?

Remember that you can always pay more towards your principal if you happen to have extra cash flow, but you cannot pay less.  Sometimes, just making extra payments (and avoiding the cost of the refinance) will meet your goals!

Could mortgages become even more affordable in the months ahead? While this may seem improbable, it cannot be ruled out. Mortgage issuers are dealing with a level of uncertainty that makes it harder for them to judge risk and assess the long-term value of the loans they originate.

Contact our office if we can help you think through your goals and assess your options.