Have You Refinanced Yet?

But really, have you?

Given the crazy market we find ourselves in, many sellers are cashing in by selling their homes.  Others take a different approach - they have leveraged higher property valuations to refinance their mortgages and even pull out cash. 

With mortgage rates at historic lows, it’s the perfect time to consider refinancing your home. If you’re looking for ways to cut costs and save money in 2021 - then taking advantage of these current rates with a new loan should be at the top of your list.  Some of our clients have already refinanced their mortgages this year, and they not only saved significant interest through the life of the loan and lowered their monthly payments - but also pulled out cash to make home repairs and improvements - which makes their home more pleasant to live in and further boosts home value for the future.  It is a beautiful cycle to take advantage of when the market is in your favor.

Others pulled out cash to pay down high interest debt, start a home business or invest for retirement.

Depending on the amount of equity in the property, credit score and your Debt to Income Ratio, you may not even need an appraisal (that is how much equity many people have sitting in their properties).

Top Five Reasons to Refinance:

• Lower your monthly mortgage payment – This is usually the #1 reason, and it’s easy to see why - you’ll have more money in your pocket each month and less interest over the life of your loan. 

• Change your mortgage term for more equity – You could convert to a 15-year mortgage if you currently have a longer-term mortgage to gain more equity in your home and pay off your loan sooner.  You’ll be paying less total interest over this loan period.

• Change your mortgage term for more cash flow -- You could increase your term back to a 30-year mortgage if lower monthly payments and more cash flow are your priorities. If it’s your forever home, then don’t be concerned if you’ve stretched out your payments over a new 30-year loan.

• Switch from ARM to fixed rate mortgage for more stability – If you plan to live in your home for more than 5 years, take advantage of lower rates on fixed loans now before your Adjustable Rate Mortgage’s discount period rises.

• Say good-bye to Private Mortgage Insurance (“PMI”) – You could save hundreds without this mortgage insurance that your lender required. If you’re at 20% equity with your home, a new loan can eliminate PMI.

Understand the Process

Refinancing can be confusing for many homeowners, especially if you’re not sure if it will make financial sense or if you’re a good candidate.  Homeowners should take the time to understand the challenges and costs before they move forward.

Don’t hesitate to reach out to Balsam for help. We can provide recommendations for reputable lenders, review any estimates you receive, and even help you determine if it’s a good choice for you.

Let’s look at some important points about refinancing so you can better understand the process.

A Refinance Is a New Loan Approval.

Remember, this is a new loan - and a lender needs to approve you for this new loan.  We can go over the factors that will help you qualify to refinance in detail, but here is a quick rundown of what lenders look at:

• Adequate home equity or loan-to-value ratio - usually at least 20% equity in your home is required;

• FICO credit score of 620 and above;

• Sufficient income to support monthly mortgage payments;

• Stable employment for the past two years;

• Sufficient Liquid or other asset reserves (checking and savings account, stocks, bonds, retirement accounts, other properties); and

• No loose ends such as past due bills or liens.

Refinancing requires upfront costs and fees. 

Will it be worth it for you in the long run? A quick analysis of your current financial and personal situation can determine if it makes financial sense to move forward. Here are some factors to consider:

• How Soon Is Your Next Move? Don’t refinance if you plan to move sooner than later since it may take a while to actually recoup the cost of the refinancing. We can help you determine a break-even point - how long you need to stay so you don’t lose money.

• What’s the Spread? Most experts say only consider refinancing if you get the right percentage point difference in your rate. If your current rate is already low, it may not be worth the cost to refinance.

• My Momma Told Me...You Better Shop Around. Fees to refinance could average around 2% of the new loan amount, which can eat into any money you saved with a lower mortgage rate. Shop around and get written “loan estimates” from a number of banks/lenders so you can compare each lender’s costs, interest rates and other factors.

• There are Services and Fees to Consider. Refinancing costs can include appraisals; inspections; application, underwriting and processing fees; and even a penalty for refinancing too early on your original mortgage. Plus, don’t forget there are closing costs! These may be rolled into the loan, but many financial experts advise against it. Loan estimates will allow you to access and compare these fees.

We are Here to Help

If you haven’t already refinanced and you plan on staying in your home for a while, get to it.  No one knows how long these historically low rates will continue and they aren’t likely to get any lower.  

Here’s how I can help as you consider the options:

• We work with great lenders who have low rates and make the process as easy on you as possible.  Or, if you have a “different” type of situation, such as being self-employed or don’t have a lot of equity in your home, I have lenders that can help with these out-of-the-box scenarios;

• We can analyze your current loan and talk through whether it makes financial sense to refinance now.  There are several factors to consider including how long you plan on living in your property, what your current interest rate and payments are, and how much equity you have in your home.  Refinancing doesn’t make sense for everyone, so let’s work together to find out what’s best for your situation;

• We can help you compare the options and pricing from different lenders and help you make the best decision;

• We can help you make sense of the loan estimates and calculate your break-even point, the month when the monthly savings outweighs the cost to refinance.  That way you know for sure if it makes sense to spend the time and money going through the refinance process; and

• In addition to reaching out to us, it’s also a good idea to consult with your financial advisor and accountant. They can explain the costs and benefits with the benefit of knowing all the tax consequences and opportunities.   If you don’t have one, we can recommend one, just let us know.

We’d love to hear from you. Please email us if you have any questions or want to talk through what makes financial sense for you.  Remember, we are here for you even if you aren’t buying or selling anytime soon. This is just one way we can help guide your real estate decisions.