Mortgage rates are gradually declining as the nation embarks on the extended journey back to normalcy with the easing of the coronavirus pandemic. This is positive news for U.S. homeowners aiming to refinance their mortgages and reduce their monthly home payments. If you’re considering refinancing your mortgage presently or in the near future, continue reading to explore the comprehensive details you need.
What are the current refinance mortgage rates?
By the final week of May, 30-year fixed mortgage rates had slightly surpassed 3.0 percent, as reported by Mortgage News Daily. Comparatively, during the same month a year ago, these rates for a 30-year fixed mortgage stood at 4.25 percent. When mortgage rates reach such low levels, financial experts suggest it’s an opportune moment to engage in the refinancing process – provided one acts promptly. Additionally, utilizing Credible’s free online tools to evaluate various mortgage companies and assess potential savings is advisable.
Mortgage rates remain close to the record lows achieved in April, according to TheMortgageReports.com in their June 2020 real estate analysis. While there is a possibility of rates dropping further, the current unpredictable circumstances make it uncertain. The report advises that rates could either escalate or decline, urging individuals to consider securing a low rate that is presently available.
When is the best time to refinance your mortgage?
Typically, homeowners refinance to lower mortgage expenses by transitioning to a lower interest rate. However, reducing costs is not the sole reason for refinancing. Several other factors prompt refinancing.
Seeking a comprehensive change
“Most properties are acquired with bank financing that involves an agreed interest rate, loan term, and payment stability,” noted Caleb Liu, proprietor of House Simply Sold Refinancing, a home-flipping company in Southern California. “Generally, modifying at least one of these factors could be beneficial for homeowners considering refinancing.”
You aim to capitalize on reduced interest rates. Not only does this lead to paying less interest, but it also allows for the adjustment of the loan term and the amortization schedule, as highlighted by Liu.
“This means redistributing the lower remaining loan balance across a new term, such as extending it to 30 years into the future,” he explained. “This secondary aspect also diminishes your principal payments on the new loan, although the trade-off is an extension of the total loan period for the home. Collectively, both aspects have the potential to yield savings of several hundred dollars per month.”
Your intention is to transition from a variable rate loan to a fixed-rate loan. Many homeowners initially chose adjustable-rate mortgages (ARMs) to minimize monthly expenses but express concerns about potential future rate hikes. “Refinancing to a fixed-rate mortgage eliminates the risk of potential rate increases,” Liu pointed out.
Your goal is to extract equity from the home in the form of cash. Refinancing permits borrowing against the home’s equity, providing a lump sum of cash upon the refinance’s conclusion. “Even if interest rates have decreased, your monthly payments are likely to increase, but you will receive a substantial lump sum,” Liu added.
What occurs during a mortgage refinancing process?
Individuals gearing up to apply for a refinanced mortgage loan should commence by mastering the fundamental aspects involved in the process.
“Mortgage refinancing involves acquiring a new mortgage loan to settle the original one,” stated Katie Ross, the Education and Development Manager for American Consumer Credit Counseling, a non-profit financial education organization. “Typically, homeowners opt for refinancing to leverage lower prevailing market interest rates or to benefit from improved credit, resulting in obtaining lower interest rates.”
Ross highlights the current economic environment, heavily impacted by the coronavirus and subsequent economic downturn, as nearly ideal for homeowners considering mortgage refinancing.
“The pandemic has led to notably reduced lending rates,” she remarked. “In fact, certain lenders are offering a 30-year fixed-rate mortgage starting at 2.5% presently.”
Various other components play significant roles in mortgage refinancing, necessitating swift familiarization for borrowers.
“For potential homebuyers, it’s crucial to consider all costs linked with home purchases,” Ross emphasized. “Even with low interest rates, it’s imperative for homebuyers to evaluate whether they can truly afford the associated closing costs, which are often overlooked when assessing their housing affordability.”
Following those considerations, Ross recommends marking off these essential items on any refinancing checklist:
Is there a difference of at least one percentage point from your current rate? If yes, it’s likely that you’re securing a favorable refinancing opportunity.
What will be the potential monthly mortgage savings? The precise amount will vary depending on the mortgage size. In general, if you can reduce your monthly mortgage payment by 5 to 10 percent or more, opting for refinancing is a prudent move.
What are the associated closing costs? Typically, the expenses for home mortgage refinancing range between two and five percent of the total loan amount. Therefore, it’s crucial to incorporate closing costs into any decision regarding loan refinancing.
How long will it take to offset the cost of refinancing with the monthly savings? The primary objective here is to recover closing costs through lower interest rates within a year, particularly for homeowners intending to stay in the home for more than five years.
Where to Secure the Optimal Mortgage Refinancing Offers
Embark on your search for the best deals by exploring options at your local bank or credit union. Since borrowers already have an established relationship, banks are inclined to collaborate with existing customers, potentially offering reduced rates and fees.
Additionally, scour the internet for top refinancing opportunities through rate comparison platforms like Credible. These platforms enable users to effortlessly compare multiple lenders and interest rates without incurring any charges. Platforms like Credible also facilitate obtaining prequalified borrowing rates, which doesn’t impact one’s credit score.
Lastly, consider utilizing an online refinance mortgage calculator to dissect interest rate statistics and evaluate the implications of fees and closing costs on your loan. Having precise figures before loan application is a substantial advantage in the refinancing realm, guiding borrowers toward the most favorable deal available.