To Refinance or Not?
The recent drop in mortgage rates has opened some new opportunities for individuals. Freddie Mac
notes that over the past few weeks, thirty-year fixed-rate mortgage rates have hit the lowest levels for
mortgages in 2011.
“The rate drops came courtesy of glum economic reports as well as continued concerns about
economies abroad. A sharp drop in the stock market also may have sent more investors toward bonds
and mortgage-backed securities, which brings mortgage rates down,” according to Amy Hoak from
MarketWatch. This drop can mean lower mortgage payments for many consumers in the right position
to refinance.
Here are a few considerations when determining if refinancing is the best option for you.
Lower your payments
A good rule of thumb when refinancing is that, if you can reduce your interest rate by 1%, it may be a
good decision. It can lower your monthly payment and allow you to recoup the closing costs in
relatively short period of time.
Decrease Length of Loan
With a drop in rates, it may also be beneficial to consider moving from a 30-year to a 15-year loan. Your
payment may go up slightly, but you will cut your number of payments in half!
Consider the Costs
Since there are closing costs involved with refinancing, you have to look at how long you will be in your
home and how quickly you can break even on the closing costs. If, for instance, you would lower your
interest rate by 1%, decrease your monthly payment by $150 and incur closing costs of $1,500, you
would need to stay in your house for 10 months to recover the costs. If you are planning to reside in
your house for a while, after the 10 month period, the $150 is pure savings each month.
Consolidate Debt
Many consumers find it valuable to combine two mortgages into one lower, fixed rate scenario. The
benefits of lower rate and payments over the loan term can help simplify an individual’s finances and
reduce stress levels.
There are many additional considerations when deciding whether to refinance, and we are here to help
sort through your possibilities. It is important to understand your goals and current financial picture
before jumping into a refinance situation. With our straightforward, honest approach, you can be
confidence we have your best interests in mind and will help you understand your options.