Refinancing: is it right for you?

Refinancing. That’s a term you regularly hear thrown around in the mortgage industry.

It is, in fact, exactly what it sounds like- replacing your current mortgage with a new one. While there are a variety of reasons that lead people to refinance, these are some of the most common:

The first is to lower your interest rate. If you took your mortgage during a time where interest rates were slightly higher, choosing to refinance could, ultimately, save you thousands of dollars. This type of refinance is typically referred to as rate-and-term refinancing. You refinance the remaining balance on your mortgage for a lower interest rate and a term (or number of years it will take to repay) you can afford.

The second reason to refinance is to convert an adjustable rate loan to a fixed rate loan. Just like it sounds, an adjustable rate loan has an interest rate that fluctuates based on market conditions. So, when interest rates are low, converting your loan to a fixed rate loan secures that low interest rate for the remaining duration of your mortgage.

The third is a way to “free up” cash. Typically referred to as cash-out refinancing, this entails taking out a new loan for a greater amount than your previous balance. You can then take the difference in cash or even use it to pay off other forms of debt.

Other reasons to refinance are to eliminate FHA loan insurance or even to settle a divorce.

The potential benefits seem pretty obvious. Lower interest rates means less money paid over the life of the loan. It even means you could lower your monthly mortgage payments. Having additional cash on hand. All of these benefits are compelling.


To refinance or not to refinance

Refinancing, however, is not for everyone. There are a variety of other factors that contribute to the entire refinancing process. The length of your loan, the amount of money you owe, even the amount of time you plan on staying in that particular home.

Both the length of your loan and the amount of money you owe can directly affect the additional costs to refinance. These “hidden costs” are important to factor into your decision to refinance (or to keep your current loan). Cost of a house appraisal, loan origination fee, plus a variety of other costs for filing documents, purchasing title insurance and even fees for your new mortgage application.


Time to break out your calculator

Before you take the plunge, take a minute to crunch the numbers. Is refinancing something you can afford, at this time? And, will you ultimately save money over the duration of your loan?

The goal is to not only “break even,” but to do so in a time frame that is affordable and beneficial to you. Essentially, how long it will take for the refinance to pay for itself. For example, you have $2,000 in costs to refinance, but you are saving $100 in your monthly payments. In that situation, you will “break even” after 20 months of payments.


What now?

Are you considering refinancing? Take a look at your current mortgage and financial situation. You can even discuss the benefits of refinancing with one of our loan officers. In doing so, you can determine whether or not refinancing is the smartest move for you (at least for now).



By Natasha Mason

Refinancing: is it right for you?2020-09-28T15:14:21+00:00

Higher Interest Rates & Home Buying

…what you need to know with increased rates right around the corner

Maybe you’ve been keeping up on economic news. Maybe you haven’t. Either way, one of the most discussed financial news stories this fall is about the Federal Reserve Bank (or the Fed) raising their interest rates.


Let’s start with the basics

The Fed sets a benchmark interest rate that, essentially, establishes how much it costs banks and other lenders to loan money. After the economic crash in the early 2000’s, the Fed lowered their benchmark rate to infuse more money into the economy. A lower rate means it is easier to lend, and subsequently borrow, money.

The result? A higher availability of “cash” in the hands of consumers and business owners. The lower the Fed’s benchmark rate, the lower your interest rate, as a consumer, will be.

So, the purpose of lowering the benchmark rate is to, ideally, stimulate the economy. The low rate set by the Fed nearly 7 years ago has assisted in the resurgence of the housing market, as well as the U.S. economy in general.

In December of last year, the Fed did raise their rate for the first time in 7 years to 0.50% with the intention to raise rates multiple times throughout 2016. The economy, however, has not been growing at the rate Fed officials initially anticipated. Consequently, the Fed has not raised their rates at all this past year, keeping their benchmark rate at 0.50%.

Why is this important to discuss right now, then? Well, the Fed will be raising that rate again, and soon. Fed officials will be meeting again, this month, to discuss raising their rate. Even if it does not happen in December, it is fairly certain they will be raising their rate in early 2017.


Now what does that mean for you?

You may be thinking- a 0.50% to 1% increase in the Fed’s benchmark interest rate isn’t that much. And, to some extent, you are correct. But how that number translates to your interest rates is much different.

Currently, the average interest rate for a 30-year fixed mortgage is at approximately 4% with the Fed’s benchmark rate is at 0.50%. When the Fed raises their rate, even by just 0.50%, the translation to your “real” interest rate is much more dramatic.


So, let’s talk implications

For simplicity’s sake, let’s say the Fed increases their benchmark rate and, as a result, the average interest rate for a 30-year fixed mortgage jumps from 4% to 5%.

*these numbers were chosen to provide a concrete example of how increased interest rates can affect your overall mortgage payment

Now, let’s say you are looking at a $100,000 mortgage, with a monthly payment of $500. At a 4% interest rate, you are looking at paying approximately $2,000 in interest per year- totaling at $72,000 after 30 years. At a 5% interest rate, with the exact same mortgage and monthly payment, you are looking at paying approximately $3,120 in interest per year- totaling at $93,000 after 30 years.

That’s a difference of $30,000. Even though interest rates may have only increased by 1%, you are paying significantly more over the life of your mortgage.


You can still buy a house

…You just need to be aware of how a higher interest rate will affect your situation. The $100,000 home you were initially looking at may be a little too much “house” for you to afford. If your paying an additional $30,000 in interest over the life of your loan, it may take that house out of your price range.

On the other hand, if you can still afford the $100,000 home, it is essential to recognize that you will be paying more over the life of your mortgage with an increased interest rate.

If you are planning on buying in 2017, factor an increased interest rate into your plans and your budget. The last thing you need is a surprise (especially one of that magnitude) as you are trying to finalize a purchase.


Considering refinancing?

Now is the time! Talk to your lender, get your paperwork in and secure a lower interest rate immediately. For refinancing options, you should contact your lender so they can provide specific details for your situation.



by Natasha Mason

Higher Interest Rates & Home Buying2020-09-28T15:14:21+00:00
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