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When mortgage rates decreases, the number of candidates for refinancing increases.
And now, with rates hovering around 3%, 13.8 million homeowners can be considered “quality candidates” for refinancingsays Mitch Cohen, director of public relations for mortgage data company Black Knight.
All these 13.8 million candidates for refinancing 30 year mortgage The rates are 0.75% or more above the current prevailing 30-year rate, Cohen said. Cutting interest rates by 0.75% or more could provide these homeowners with significant savings: about $ 290 a month, Cohen says.
According to Cohen, if you meet the following criteria, you may be among these millions of homeowners who can save money through refinancing:
- 720+ credit rating
- At least 20% of the home equity
- Current mortgage payments
- The ability to reduce interest rate not less than 0.75%
Even if you fall into this group, there is a lot to think about to make sure refinancing makes sense. closing costs how long you plan to stay in the house.
“Homeowners need to be very careful to make sure that refinancing really makes sense to them,” says Kyle Seagraves, a Certified Mortgage Consultant for the homebuyer education website and YouTube channel. Win the house you love…
So, before signing the mortgage refinancing results, you need to first pay attention to the following:
Does refinancing make sense for you?
When thinking about refinancing, you should look at the numbers and make sure they make sense. But you will also want to take a step back to reassess your broader goals in your life and your finances.
Will the savings outweigh the costs?
Refinancing is paid. Approach a refinancing decision like an investment, like something you pay for, to make sure you get more than what you put in. “A lot of people don’t realize that you have to pay up front to save money every month,” says Seagraves.
When deciding whether to refinance, be sure to consider the closing costs and remember that even “free” refinancing will incur a commission.
Closing costs: Each time you refinance, you will be charged the closing costs, which usually range from 3% to 6% of the loan amount. As with your interest rate, the amount of the commission depends on the lender. “Pay attention to the closing costs that the lender controls,” says Matthew Garland, manager of the Garland Mortgage Group and co-host of the Rants & Gems real estate podcast. The main fees the lender sets are the clearance fees and discounts listed in Section A of your Loan valuation…
Refinancing costs without closing: If you pay little or nothing out of your pocket with free refinancing, it simply means that additional commissions are being credited to your balance. “Don’t fall into the ‘I’ve lowered monthly payment’ trap and don’t include closing costs,” says Seagraves.
Balance point: Once you know how much less interest you pay every month, then you can calculate your break-even point. If you save $ 200 a month in interest and have $ 15,000 to close, it will take you 75 months or a little over six years to break even. Once you know your equilibrium pointit is then easier to determine if you plan to keep the house long enough to justify the cost of refinancing.
Will refinancing help you achieve your financial goals?
Whether refinancing makes sense for you depends on what you are trying to achieve. Here are some general refinancing goals and ways to see if they make sense to you:
Pay off your mortgage earlier: For homeowners who are desperate to pay for their 30 year old mortgage, it makes sense to refinance for a shorter term. FROM 15 year refinancing, you will receive a lower interest rate and pay much less in the total interest, but you will pay a higher monthly payment.
Here’s an example:
|Credit term||The value of the loan||Interest rate||Monthly payment||Total interest paid over the term of the loan|
|30 years||USD 300,000||3.25%||USD 1,305||USD 170,177|
|15 years||USD 300,000||2.75%||USD 2,035||USD 66,492|
Remaining liquid: The lower repayments on a 30-year loan give you a lot more flexibility if something unexpected happens, like losing your job. Therefore, if you do not want to be exposed to the additional risk of large payments, you can take out a loan for 30 years and pay it back as if it were a loan for 15 years. Then, if your income is down, you will not be tied to higher monthly payments. The only compromise is higher interest rates on 30-year loans.
Special projects: Garland recently worked with clients considering the standard rate and refinancing period and wanted to invest in a rental property. “It was more reasonable for them cashing refinancing to get some of the capital, ”says Garland.
Cash refinancing can also work for home improvement projects and paying off other debts at high interest rates. Refinancing with cash payments will increase your loan balance, but it still makes sense if you have a solid plan for the money.
Whatever your situation, getting a better mortgage rate is just the beginning when it comes to refinancing. It is important to pay attention to the cost of the loan and consider whether refinancing is the best option to meet your goals.