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Your life looks nothing like it did a year ago: Why does your mortgage?

should i refinance
Reading Time: 5 minutes
Oct. 2, 2018.

Should I Refinance?

With the fluctuation in rates in recent years, many people find themselves asking “Should I Refinance?”. Unlike a fine wine, a mortgage may not get better with age. The mortgage that you signed up for five, 10, or 20 years ago most likely does not reflect the latest market interest rates and may not match your current financial needs.

As you’ve probably seen in your own life and among your friends and family, the times, they are a-changing. In the past year alone, you may have gotten a new job, had a baby, decided to move, or reached retirement age. These big milestones aren’t just an adjustment. They can change the course of your life completely. And still, your mortgage remains the same.

A quick checkup is really all it takes to keep your mortgage on track with everything else that’s going on in your life:

  • Scheduling a mortgage review with your loan officer will tell you if your home loan is still the right fit.
  • Depending on your mortgage terms and life changes, refinancing could shave a few hundred dollars off your monthly payment.*

How an aging mortgage is holding you back

Mortgage refinancing starts to make headlines as home interest rates start to drop. It makes sense — when interest rates go down, refinancing numbers go up. By definition, refinancing is using a new home loan to replace and pay off your current mortgage. Lower interest rates mean that you could get a better deal, and a lower monthly payment, on a new home loan when you refinance your house.

Market mortgage rates can fluctuate daily, but there are several refinance trends we’ve seen in the past year:

  • Cash-out refinance is regaining popularity. The Wall Street Journal reported, based on Freddie Mac numbers in 2017, that homeowners in the U.S. are opting to take cash out in their mortgage refinances at the highest level seen since the 2008 recession.
  • Millions of homeowners may be eligible. Also in 2017, Black Knight Financial Services confirmed that nearly 4.5 million borrowers may be eligible to refinance their mortgages — potentially qualifying for a better interest rate. A drop in mortgage rates during that time period made more borrowers eligible, rising from 1.6 million eligible homeowners earlier in the year.
  • The outlook for 2018 is still stable. We never know what the housing market — or the economy — will do, but we can take cues from expert market analysis. Several Federal Reserve rate hikes for the year have impacted mortgage rates indirectly (read: caused them to rise a bit). But homeowners are still refinancing, making up 39 percent of mortgage applications according to recent Mortgage Bankers Association numbers. Mortgage rates may be slightly higher than those seen in 2017, but they’re still at a historic low, making it possible for many refinancing homeowners to benefit.

All this information is important, but it’s not the whole picture. Waiting until you hear about mortgage refinancing in the news could mean that you’ve been missing out on mortgage refinance opportunities for the past few months or even years. And on the flipside, the media’s view of mortgages may have nothing to do with the unique benefits you could receive from refinancing, based on your recent financial and lifestyle changes.

Schedule your yearly checkup (and ask yourself 8 questions)

should i refinance
Most of us are vigilant about going to the doctor for our annual checkup, and yet, we don’t apply the same logic to our mortgage. For many homeowners, a mortgage is not something that will grow sweeter with time. If anything, a mortgage is more likely to grow stale and outdated when it’s left unattended for the life of a loan.

Give your loan officer a call or send an email. And while you’re at it, ask yourself these questions to determine if your mortgage needs attention:

  1. What’s the approximate value of your house? If you don’t know, your loan officer can help you get a free home evaluation from a qualified real estate agent they’ve successfully worked with in the past.
  2. Has your family size changed in the past year? Do you anticipate it will change in the next 2-5 years?
  3. How much longer do you plan on living in your house?
  4. What are your goals and dreams for homeownership in the next 3 to 5 years, 5 to 10 years, and 10 years or longer?
  5. Have there been any big changes to your income or employment in the last 12 months? Do you expect any in the near future?
  6. Have there been any big changes to your savings, checking, investment, or other balances in the last 12 months? Do you expect any in the near future?
  7. Have you taken on any new debt that will remain open for more than 10 months?
  8. Have you paid off any existing debts in the past 12 months?

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Your loan officer will want to know the answers to these questions, down to the last detail, if you’re interested in a refinance. The reason being, different mortgage refinance programs provide different benefits to different people, based on the answers to the questions listed above.

For example:

  • You may simply want to tune up your mortgage. In this case, your loan officer may provide you with information on refinancing to lower your mortgage interest rate and save money on your monthly payment.
  • You may want to shorten your loan term. Refinancing a 30-year home loan into a 15-year home loan could allow you to pay off your mortgage sooner.
  • You may want to consolidate debt. Depending on your answer to question number seven above, a mortgage refinance could be used to help you consolidate multiple loans into one home loan — with a potentially lower interest rate.
  • You want a new loan type. Maybe you don’t need to lower your interest rate or reduce your monthly payment. But you could use a mortgage refinance to change an adjustable-rate home loan to one with a fixed rate.

Keeping your mortgage fresh is actually quite easy. We recommend that all our homeowners put an annual mortgage loan checkup on their calendar — a practice that our loan officers use to assess and update their own home loans each year, as needed.

The safest, most accurate, and simplest way to manage your mortgage is to have it reassessed by a loan officer every year, just like you would a doctor’s checkup. Within a short 12 months, there’s every chance that your circumstances have changed, your finances have changed, and even your family dynamic has changed. The loan that was working for you a year (or a decade) ago may no longer be relevant.

*While refinancing could make a significant difference in the amount you pay each month, there are other costs you should consider. Plus, your finance charges may be higher over the life of the loan.

For educational purposes only. Please contact a qualified professional for specific guidance.

Sources are deemed reliable but not guaranteed.