Mortgage rates are constantly changing in response to the prevailing condition of the economy. When the federal government wants to stimulate spending to curb the risk of high inflation, the cost to borrow money takes a dip. When the economy is strong, mortgage prices will be higher. Presently, however, interest rates are at an all-time low as the American economy grapples with the effects of the pandemic.
Low-interest rates can be great news to borrowers, as it can mean cheap financing or opportunities to get better deals to refinance existing mortgages. Lower mortgages can also mean smaller monthly payments and more cash back in your pocket. Refinancing can lock in low rates for you in the long-term, in case they shoot back up again when the economy bounces back.
If you do a quick internet search, you can get quotes from most lenders and financial institutions. These online quotes can give you an idea of what is currently possible in today’s market. It may differ, though, from the actual rates offered to you by mortgage lenders after they have reviewed your financial statements.
3 Things to Consider when Refinancing
If you are considering seeking a refinancing deal, here are three indicators that it’s a good time for you to apply:
- If you don’t plan on moving. Depending on the terms of your new deal, you might have to extend the length of your mortgage. If you are in the third year of your 20-year mortgage, for example, your payment schedule might revert to year zero. To compensate, ask your lender to send you options for monthly payments for a 17-year plan. A shorter mortgage will, of course, cost higher than a longer one, but weigh your options carefully. The general rule is that, if you can afford it, pay your mortgage off sooner rather than later. If you don’t plan to leave your current neighborhood, then restarting the clock won’t be much of an issue.
- If your financial position has improved. You get a mortgage deal based on your borrowing capacity at the time you apply. Since you submit financial documents based on your income and expenses at that time, you can qualify for better rates one or two years after you get your initial mortgage. If you have grown your savings, you received a promotion at work, or you were able to find additional sources of income, then you may be in a better position to put in more equity and reduce your monthly payout. If you have been able to pay off other outstanding debts and your credit score has improved as a result, then your capacity to borrow will increase as well. The value of your property is also reviewed by mortgage lenders when you look for a new loan. Property valuations typically increase over time, so check if neighborhood prices have gone up since you moved in. The value of your home should be worth more than your current loan for a lender to qualify you for refinancing.
- Interest rates are better by at least one percent. When you apply for refinancing, there are additional costs involved. You will have to pay for additional appraisal fees, title fees, or attorney fees, among others. You might have to spend anywhere from $1,000 to $5,000, including taxes. If the rates are more than one percent less than your current mortgage, then that might be significant enough to shrink your monthly payments, otherwise, the move may not be worth the refinancing costs. Keep in mind that you shouldn’t refinance your loan often, as this can be viewed negatively by lenders.
Mortgage Refinancing with Shannon Christenot
Refinancing is a carefully calculated move which needs to take into account your long-term plans and your borrowing capacity, not just cheap rates. Whether you apply for refinancing should be based on these three major points. Some lenders can be great at making refinancing options very appealing, but
Are you looking to refinance your existing loan? We are a mortgage broker based in Los Angeles who can help you get the best rates. Call Shannon Christenot for home loans today at (818) 601-2231 for your free consultation!