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.
A quick checkup is really all it takes to keep your mortgage on track:
- 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.*
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.
How an aging mortgage is holding you back
Mortgage refinancing starts to make headlines as home interest rates 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.
Here are some important things to know about today’s falling rates:
- Since Q4 in 2018, mortgage rates have dropped by over one percentage point to reach near-historic bottoms. Today’s rate sits at just 3.56 percent.
- Freddie Mac’s Primary Mortgage Market Survey recently said, “The 30-year fixed-rate mortgage (FRM) rate averaged 3.60 percent, the lowest it has been since November 2016.”
- To provide an example, if you currently own a $200,000 home and want to refinance and lower your rate from 6 percent to below 4 percent, you may save over $244 a month on your mortgage. Depending on the refinance costs that also apply, it could take you 40 months of continued ownership to break even.**
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)
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 ask yourself these questions to determine if your mortgage needs attention while you’re at it:
- 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.
- Has your family size changed in the past year? Do you anticipate it will change in the next 2-5 years?
- How much longer do you plan on living in your house?
- What are your goals and dreams for homeownership in the next 3 to 5 years, 5 to 10 years, and 10 years or longer?
- Have there been any big changes to your income or employment in the last 12 months? Do you expect any in the near future?
- 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?
- Have you taken on any new debt that will remain open for more than 10 months?
- 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.
- 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. It’s a good idea for all homeowners to put an annual mortgage loan checkup on their calendar — a practice that our own loan officers use to assess and update their home loans each year, as needed.
Does your house smell like a musty mortgage?
The safest, most accurate, and simplest way to refresh your mortgage is to have it reassessed by a loan officer every year, just like you would at a doctor’s checkup. Within a short 12 months, there’s every chance that your circumstances, your finances, and even your family dynamic have 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.
**”Should I Refinance My Home?” Keeping Current Matters, July 2019.
For educational purposes only. Please contact a qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.