When interest rates are lowered, when you want to change the type of or the duration of your mortgage, or access equity in your home, you may think about refinancing. Refinancing is the process of having your original mortgage paid off and then replaced with a new one with new, and more favorable, terms.
But there is more to refinancing than that. After all, you are obtaining a new mortgage, and with that comes a new mortgage application process, including an appraisal, providing the required documentation, and various fees. And given the uncertainty in the overall global and economic climate, you may wonder, “Is now a good time to refinance?”. Here are some points for you to ponder that may make you say yes.
Reason 1: Forget the 2% guideline.
Every time that interest rates fall, there tends to be more borrowers who want to refinance. Even though the general guideline is that you should wait for the rates to fall by 2% before you should refinance, in reality, you can gain overall savings even if they do not fall that much. Make sure you crunch your numbers to find your break-even interest rate amount.
Reason 2: Current mortgage rates are still very low.
Even though they have been inching higher, interest rates are still at incredible lows. And despite their being some talk of an interest rate hike, if the economic conditions require a stimulus, the interest rate could move downward again. Regardless, you can enjoy a great refinancing opportunity with these still historically low-interest rates.
Reason 3: It doesn’t have to cost you upfront to refinance.
Some mortgage lenders offer the option of a no-cost refinance. With this option, the interest rate decrease may not be as much as it would be in a traditional refinancing, but your lender would waive the costs that you would typically pay in a traditional refinancing. If the numbers add up, once again you can enjoy savings overall the length of the loan.
Reason 4: Lenders have eased their requirements.
After the sub-prime crisis of 2008, mortgage lenders understandably tightened their lending requirements. But with a stronger market and more careful lending, mortgage lenders have gradually eased on some of their lending requirements. For example, they may be more willing to accept a lower credit score or somewhat less equity, or be financially friendlier towards the self-employed, making it easier for borrowers to refinance.
Reason 5: HARP is still available.
The federal government offers a program called Home Affordable Refinance Program (HARP), which is available through to the end of September 2017. This program helps certain eligible borrowers to refinance in order to take advantage of lower interest rates, or otherwise receive better terms within their mortgage.
According to the HARP web site, there are more than 367,695 loans across the country that are eligible for refinancing and save through this program- is yours one of them?
Reason 6: You can get a better deal when you change your loan.
In some cases, the interest rates on shorter mortgages, such as 15 or 20 year, are lower than of a 30 year mortgage. With a shorter loan and lower interest rate, you can save significant amounts of interest while paying off your mortgage faster.
Should You Refinance?
The question about whether or not you should refinance is a personal one. The time and effort you need to put in to a refinance should not be discounted, but you could reap great financial rewards. Consider all scenarios, calculate the numbers correctly, and then make the right refinancing decision. Now can be a fantastic time to refinance and save!