At long last...
From April to August, according to Mortgage Daily News, *30 Year rates have swung from ~7.5% to ~6.625%.
Is it time to refinance?
Let's dive in!
*Rates vary greatly applicant to applicant, and are impacted by a wide variety of factors including:
-Purchase loans generally better than Refinance (especially at higher Loan to Values)
-Credit Scores
-Property Type
-First Time Buyer status
-Loan Program
-Loan to Value (equity position or down payment)
-Loan Term
-Income Level
-Qualified Mortgage V. Non QM
-Rate/Term Refinance V. Cash Out Refinance
-Number of Units, if Multi Unit
-And more...
Refinance Options
Rate/Term
A Rate/Term (R/T) refinance allows a homeowner to refinance their existing mortgage to reduce the interest rate, change the loan term, or remove a party off of the mortgage and/or deed.
Borrowers are allowed to roll in Closing Costs, Escrows and Prepaid Items to their R/T Refinance, however if you are receiving your current Escrow Balance back, you may considering funding your new escrow balance yourself. No need to stress, we will review what to expect for costs to the penny.
Cash Out Refinance
A Cash Out refinance allows a homeowner to refinance their existing mortgage, and take additional funds up to 80% of their home's value, although there is a premium to the rate for going to the max.
You may have heard that you can access your equity to accomplish a wide range of goals from rolling in high rate credit card debt, consolidating first and second mortgages (especially because the average HELOC across North America is ~10%+), home upgrades, and so much more.
Refinance Comparison
Want to learn more about how mortgages work? A super tool is familiarizing yourself with a Mortgage Calculator, also called an Amortization Schedule. Reach out any time for guidance.
Below are estimates for a sample R/T refinance situation comparing Fixed Rate options.
Original Mortgage $400,000 @ 7.5%, 30 Yr. Principal and Interest = $2,796.86
Assuming NO extra payments made = Lifetime Interest $606,868.89
Refinance Mortgage $385,000 @ 6.625%, 30 Yr. Principal and Interest = $2,465.20
Assuming NO extra payments made = Lifetime Interest $502,470.99
Refinance Mortgage $385,000 @ 6.625%, 25 Yr. Principal and Interest = $2,629.70
Assuming NO extra payments made = Lifetime Interest $403,909.73
Let's compare!
If this borrower refinances $385,000, reducing rate from 7.5% (on original $400k loan), to 6.625%, keeping a 30 year fixed = $331.66 monthly savings
Assuming NO extra payments made = Lifetime Interest saved = $104k
Here is where the magic of reducing your loan term really shows...
If this borrower refinances $385,000, reducing rate from 7.5% (on original $400k loan), to 6.625%, switching to a 25 year fixed = $167.16 monthly savings
Assuming NO extra payments made = Lifetime Interest saved = $202k!
If you have received a raise, or perhaps are 'house hacking' and comfortable with a higher repayment, and inflation, I implore you to review 20, 15 and even 10 year terms.
Did you check out the repayment on your simple Mortgage Calculator, and nearly fall off your chair at the increase? If so, that is okay. It took us 17 years to refinance to a 10 year term. It was worth the wait. Just keep swimming.
Closing Costs
Cash V. Savings Analysis
Your credit is important!
You can receive a Refinance Estimate, and a Cost V. Savings Analysis without a hard credit check.
Throughout my career I have sent thousands of Cost V Savings Refinance analyses, and I always say it will jump right off the page if a refinance makes financial sense for you.
Here is a simple sample analysis:
-New Loan Closing Costs $3,500
-Refinance Sample above, R/T from $400k original loan to $385k new 30 year saves $331.66 per month
-In 11 months, the cost to refinance is recouped, and each month thereafter is saving
Most folks recoup the cost within a few years. Statistically, we only stay in a home (or loan) for 5 to 7 years. If you do not plan to stay, a refinance may not make sense.
What about Points
You may notice that nearly all online rate quotes are with points.
1 point = 1% of the loan amount. That adds up quick!!
If rates continue to drop, and another refinance opportunity presents itself, points can be totally wasted money!
Buyer Beware
It is unfortunate that unscrupulous individuals exist across every industry. I cannot tell you how many times clients have reached out while in process with another lending institution to share a Loan Estimate that is loaded with Points, high closing costs, or worse a Loan Program that sends the client backwards.
Before you sign on the dotted line you should feel confident in your decision.
Next Steps
So what's the next step?
The next step is to obtain refinance estimates. Remember, protect the integrity of your credit, you should not have to have a credit check.
We send out clients some basic refinance questions. With answers, we then estimates, as well as a Cost V. Savings analysis including a detailed breakdown of costs to expect.
From there, you will be able to clearly see if a refinance will make sense for you. If now is not the time, you can get a clear idea of what rate will be your refinance sweet spot.
Ready to proceed!
When we know the refinance makes sense, the next step is to apply. The refinance process averages 30 to 45 days. Our goal is a seamless, stress free, and even enjoyable experience. Refinancing is generally GOOD! You are accomplishing an important goal.
Nicole's Expertise
Will rates drop further? You have likely heard me say we don't have a crystal ball, and it is wrong when people say 'rates will drop by xx/xx/xxxx date'. It IS typical, and expected that rates fluctuate, and all signs point to rates continuing to trend down. The best thing you can do is familiarize yourself with the Mortgage Calculator, know your personal budget, stay in touch on the market, and know what rate makes sense for you to proceed with a refinance.
Nicole's Closing Advice
We love helping clients set themselves up for a healthy financial future, and refinancing is often a part of that plan.
Speaking of planning, a Financial Advisor is a super expert to have on your team, and if you haven't yet got one in your corner, you may be missing out.
Reach out any time with questions. It would be my pleasure to help.
