Image Source: TheTruthAbout”/> With mortgage rates at an all time low, now may be the best time to consider refinancing. Image Source: TheTruthAbout
If you were born after we first landed on the moon, you are among 70 percent of Americans. It’s also a great time to buy a home or refinance your mortgage because rates are lower today than at any time since you were born. Many people have a tough time figuring out whether it’s worth it. The starting point is to get the details of your current loan so you can make meaningful comparisons with alternatives.
The most obvious reason to refinance is to lower your interest rate. Evaluating a rate reduction refinance is really quite simple. Add up the costs and add up the benefits. If the benefits exceed the costs, refinance. If the costs outweigh the benefits, don’t bother. Unless you have a loan that’s already less than 5%, it will likely be profitable to refinance.
Protecting yourself from future risk is also important. People who have, say, a 5/1 ARM that is scheduled to enter the adjustable period will likely see their rate drop immediately, but there is the potential for their rates to rise in the future. It would benefit them to fix the rate at today’s low levels. They may have to pay more initially, but this is far, far less than the burden of a huge payment that may rise 100%. If you have a HELOC tied to prime rate, it’s time to fix the rate on that, too.
Ideally, you should fix the rate for whatever period you are likely to live in the home. Even if that is for just another 5 years, you can contain your risk for this time period by refinancing into another 5/1 ARM.
The goal of every borrower should be to get debt free at some time in the future. This can be done by reducing the term of the loan, perhaps by getting a 15-year loan instead of another 30-year loan. If you are 10 years into a 30-year loan you have 20 years left. You may be able to refinance into a 15-year loan with a payment that’s almost the same as on your old loan. You miss 5 years of payments. If your payment is $1,000 per month, your savings from refinancing are $60,000.
Whatever you do, you should most likely NOT just be elated because your obligatory payment goes down. Yes, it will but you go out to the lousy end of the amortization curve again. A better strategy is to keep the payment the same, thus converting the interest savings into principal reduction. That pays your loan off faster. You will like that result.
If you are going to be in the home long enough to justify a refinance, you will also benefit greatly from paying points. Typically, paying $1,000 in points will lower you interest cost by $333 per year. In three years you have recouped the $1,000 and you keep saving that $333.
Adopt a better shopping strategy than “shopping for rates.” Among first class lenders the rates are almost identical with differences that are not meaningful.
You should acknowledge that you need help from a professional – an experienced, trustworthy loan officer. He or she can guide you through the process, help you explore the alternatives, and help you make the best decision for your family. The people answering the phones at many 800 numbers are “telephone answerers” with little training and they cannot help you.
It’s also time to check your credit by getting your free report from the federally mandated AnnualCreditReport.com. This report will not give you FICO scores but if you have problems, it will show you what you need to work on. To learn more about your credit, look at the other information at Credit.com and take advantage of their free Credit Report Card. You want to make sure you get your report as clean as possible and when you do, you can proceed with confidence.
Finally, get educated about the mortgage process. I guarantee that if you buy a book, perhaps mine, or check one out at the library, the benefits will be tremendous, many times greater than the cost of the book.
As a final tip, you will be better served by doing this slowly and carefully. There is no need to be impulsive and rush into the process.
Image Source: TheTruthAbout”/>