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Is Now the Right Time to Refinance?

Crystal Rem's picture

Rates are low…property values are high…but how do you know when the “right” time is to refinance your mortgage loan? June is National Homeownership month, so we are bringing you a series of blog posts to help demystify the home loan process. Today’s topic:

Is now the right time to refinance?

The answer depends on your circumstances.

First, let’s talk about why we refinance to begin with.

Lower Interest Rate. Getting a mortgage loan with a lower interest rate is a great reason to refinance, and rates are at multi-year lows right now. A lower rate means you pay less for your house in the long run because you are paying less money to the bank.

Reduce or increase the term of your loan. Even if you are comfortable with how much you are paying each month, refinancing can be a good move because you can exchange your current loan for one with a shorter term which means you will pay off your loan faster. You’ll have to do the math though, because, reducing the term could also increase your monthly payments.

On the flip side, you may find that you need to reduce your monthly payments even more than you can with just a lower interest rate. Increasing your term may help you accomplish that.

You can take cash out to consolidate debt. You can tap into the equity of your home to cover major expenses or consolidate debt (mortgage rates are significantly lower than most other creditors).

You can move from a variable rate to a fixed rate. Adjustable rate mortgages (ARMs) start out offering lower rates than fixed mortgages, but you can end up paying a higher interest rate from the periodic adjustments that happen with an ARM. If your ARM is costing you more than the fixed rates being offered, you can save money by switching.

There are some challenges to refinancing during the COVID-19 pandemic.

The process will take a little longer, but it will get done. With limited access to locations, high demand, and additional documentation requirements (like reverification of documentation prior to closing), it may take longer for you to get your loan.

No income, no loan. Even though you already have a mortgage and have been paying on it regularly up to this point, if you are currently not employed or are not earning income, you will not be approved for a refinance.

You can’t be in forbearance or deferment. If you are not making payments to your current mortgage, you cannot refinance. You must first bring your loan current, then you can begin the refinancing process.

Final thoughts.

Always make sure the benefits (low rates) outweigh the costs (fees) or you will waste your time for very little benefit. Indications are that rates will remain low, so, if it doesn’t make sense now, you may want to wait.

Unsure of where this all leaves you? Give us a call (805-335-8150)! Our experts are happy to walk you through your options so you can make informed decisions.

Check back next week for information on credit scores and how a good score can save you money!