After mortgage rates fell to near-record lows recently, many homeowners raced to refinance their mortgages, taking advantage of a rare opportunity to save big.
Are you one of them? Or has something kept you from pulling the trigger?
Although interest rates arenâ€™t expected to skyrocket anytime soon, they may tick up in 2017.
Mortgage agency Freddie Mac says the average 30-year mortgage rate is still near its three-year low. But the group predicts an increase to 3.7 percent next year.
The current state of mortgage refinance rates is not the only factor to consider.
Ask yourself the following questions to determine if nowâ€™s the right time for your new mortgage.Click to see today's rates (Apr 30th, 2017)
Refinancing can firm up your financial footing.
A few reasons you might act now include:
In these cases, refinancing may be a very smart move.
When you refinance out of a high rate, you drop your payment. Thatâ€™s the obvious reason to refinance. But you may be able to accomplish this goal, simultaneously taking advantage of other benefits.
ARM loans certainly come with low rates. The 5-year ARM is a much-overlooked product, especially for first-time home buyers.
However, they do come with inherent risks. If, in the future, rates rise dramatically, it could spell steadily risingÂ monthly payments for the homeowner.
A fixed-rate refinance would lock in housing costs for up to 30 years.
Even better for some homeowners, aÂ 15-year loan term can save upwards of six figures. The loan term cutsÂ in half, eliminating years of interest payments.
A 15-year fixed mortgage helps you build equity faster, too.
Equity is becoming more prevalent in today's housing market, and more homeowners are tapping into it to pay off high-interest debt via cash-out financing.
A cash-out refinanceÂ gives the approved applicant fundsÂ at closing for any purpose. Imagine paying off a 17.99 percent credit card with a 3.75 percent mortgage.
The monthly savings could be in the hundreds.
So, take a look at your finances. Decide for yourself: will this refinance move you toward yourÂ financial goals?
If yes, then itâ€™s time to apply.Click to see today's rates (Apr 30th, 2017)
Force-rank your financial priorities in order of importance.
For example, you have plans to do the following: Pay a childâ€™s college tuition; book a vacation for your 20-year wedding anniversary; remodel the kitchen; pay off consumer debt.
You wouldnâ€™t mind retiring a little early, either.
But your priority list might look something like this:
If you have the cash to do it all, great. If not, find out how a refinance can help, according to your priorities.
For instance, choose a 10- or 15-year mortgage if retirement tops the list.
A short-term loan gives you the lowest possible rate, and eliminates the mortgage sooner.
But payments would higher. That could make the rest of your itemsÂ harder to check off.
In the hypothetical, force-ranked list above, college is your top priority. A cash-out refinance could make strides toward that goal.
You could knock out numbers two through four as well, if you haveÂ considerable equity.
As for retiring early, increasing your loan balance might set you back.
On the other hand, reducing your rate while taking cash out leaves you with a similar, or only slightly higher, payment.
Make extra mortgage payments each month, now that youâ€™re not paying high-interest consumer debt.
You might just clear your entire list with one new mortgage.Click to see today's rates (Apr 30th, 2017)
The most recent Case-Shiller Index shows U.S. home values up almost six percent for the 12 months ending in June. Many â€śunderwaterâ€ť homeowners have resurfaced.
Over the past few years, no- and low-downpayment programs have all but become the norm.
In fact, very few young buyers make a 20% downpayment.
According to mortgage software firm Ellie Mae, buyers under the age of 37 put ten percent down on average, and many of them put down much less than that.
The HomeReadyTM mortgage, for instance, requires just three percent down. FHA loans -- a product nearly 40 percent of young buyers use -- is approved with just a 3.5% downpayment and credit scores as low as 580.
These low-downpayment loans and similar programs often require mortgage insurance. This type of insurance is not â€śbad,â€ť contraryÂ to common misconceptions.
After all, it can give you a shocking return-on-investment. How?
Say you pay $150 per month in mortgage insurance. Thatâ€™s $1,800 per year.
That same year your $250,000 home appreciates six percent â€“ the national average. Thatâ€™s $15,000, or an eight hundred percent return on investment.
Mortgage insurance allows you to buy before saving your twenty percent down, and, arguably, is one of the better investment â€śbetsâ€ť out there.
While mortgage insurance makes sense for many home buyers, why not eliminate it altogether, if you can?
Many homeowners have achieved more than 20 percent equity in their homes in a few short years. They could eliminate this additional expense through a refinance.
Conventional loan mortgage insurance can be canceled without a refinance. However, your current lender might resist the proposition.
In that case, a refinance could lower your rate and eliminate your PMI too.Click to see today's rates (Apr 30th, 2017)
You break even when monthly savings pay for refinance costs. For example, if your refinance costs $2,000 and your savings equal $100 a month, youâ€™ll recoup your costs in 20 months.
Find out the date at which your savings kick in. Unfortunately, some homeowners think theyâ€™ll never recoup their closing costs because they rely on flawed formulas that have been floating around for decades.
For example, some break-even formulas simply presume the following.
These assumptions could be wrong. As such, make your refinance decision based on your situation. Ask yourself these questions.
Your end goal with these questions is to determine how long you will keep the new mortgage. If not very long, consider hanging onto your current loan.
If your out-of-pocket costs are zero (with no higher loan balance), your break-even point will be month one.
Itâ€™s hard to argue against such a scenario.
And, it might make sense to refinance even if the interest were reduced by just a fraction of a percentage point.
Keep in mind, though, how aÂ no-closing-cost refinanceÂ w0rks. In general, a lender might offer you two choices: (1) receive their lowest available interest rate by paying closing costs, or; (2) pay a higher rate without any closing costs.
You pay for your refinance with a higher-than-market rate.
But todayâ€™s slightly higher rate is lowerÂ than those of recent (and long-past) history. If you purchased or refinanced in the last few years, your savings could be significant.
A no-closing-cost loan can make the refinance decision an easy one.Click to see today's rates (Apr 30th, 2017)
The answer, according to the vast majority of real estate experts, is yes.
Although mortgage rates are low today -- and likely to remain low for a while -- thereâ€™s no guarantee. If rates were to rise in a year or two, your monthly payments would increase.
The fact that todayâ€™s rates are near historic lows is all the more reason to switch to the security of a fixed rate loan. Even if rates continue to fall, you could always refinance again for a better rate.
If you have an ARM, you have littleÂ to lose by refinancing to a fixed-rate mortgage. ManyÂ ARM loan holders today qualify for a similar -- or better -- fixed rate.
CheckÂ today's rates, and decide whether it's a good time for you to refinance. You know your situation best, and you can make the best decision.
Get a quote now. You can get started without a social security number, and there's never any obligation to continue if you are not completely satisfied with your rate.Click to see today's rates (Apr 30th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)