Real Estate

It’s Your House, Only Cheaper — Why Homeowners Should Refinance Now to Save Big

It's the Best Time in a Long Time to Take Advantage of Refinancing

BY Garrett Clayton/Promoted // 07.02.19

Are you leaving money on the table when it comes to your home mortgage payments? If you are one of 5.9 million, homeowners who could lower interest rates by refinancing, there’s a good chance you’re paying too much.

“But I locked in a great rate when I purchased, how is that possible?”

Glad you asked.

While savvy homebuyers know that locking in a low mortgage rate at the time of purchase is key, far fewer recognize the importance of refinancing and even fewer the importance of refinancing at the right time. Lucky for you, there hasn’t been a better time than right now to refinance since way back in January of 2018.

Here, we’re breaking down refinancing into three simple parts: what it means to refinance your home, why now is the right time, and how to decide if refinancing is right for you.

1. What Is Refinancing?

In the simplest terms, refinancing is getting a new mortgage loan to replace your original one. The key word here is replace. With refinancing, you aren’t taking out a second mortgage, which involves using your house as collateral on an additional loan. Instead, when you refinance, you actually pay off your initial home loan in order to secure the second loan, so you actually only ever have one active mortgage on your home.

For homebuyers with variable loan rates, which increase and decrease with the market, or with relatively high fixed interest rates, refinancing offers an opportunity to lock in a lower fixed interest rate. Thereby, the homeowner will pay less in interest and thus less overall for the remainder of the loan’s term — which can add up to big savings (think thousands of dollars) over the lifetime of the loan.

2. Why Now?

According to Roy Varner, a loan officer at AmpCap Home Loans, many borrowers have long thought that perhaps their chance to refinance to historically low mortgage rates had passed. Varner explains, however, how recent events have changed the mortgage landscape in favor of borrowers and refinancing:

“Almost immediately following the election of 2016, mortgage rates started heading north,” Varner notes. “And with the Federal Reserve Board seemingly entrenched in a cycle of short-term interest rate tightening, it began to look like mortgage rates in the four percent range would soon (and perhaps forever) become a memory of the past.

“However, in June of 2019 we again find ourselves very close to historic mortgage rate lows. Rates in the low four percent range are quite common. In fact, depending upon credit scores, equity, loan terms, etc., it is not at all difficult to structure a mortgage in the mid three percent range.”

To Varner’s point, the U.S. weekly average for a 30-year fixed-rate mortgage fell this week to 3.82 percent (compared to 4.53 percent at the same time last year), according to Freddie Mac’s Primary Mortgage Market Survey.

By refinancing while mortgage rates are low, borrowers who are content in their current home can take advantage of the same low rates homebuyers are getting on new home purchases without having to move. And this makes right now the ideal time to refinance, while interest rates are at the lowest point we’ve seen in a year and a half.

But don’t drag your feet on this one. Rates can creep or even skyrocket up just as quickly as they have declined.

“Potential candidates for a mortgage refinance frequently make two big mistakes when thinking about whether or not they should pull the trigger,” Varner warns. “First, procrastination is not your friend. We live in such an interconnected global economic environment today, that factors on the other side of the globe can have an immediate influence on interest rate movement at home.

“If you think you might benefit by today’s lower rates, you should act decisively.”

3. Is Refinancing Right For Me?

In general, refinancing is touted to be best suited for borrowers with very good credit and significant equity in their home (the amount paid down on the current home mortgage principal). However, borrowers with lower credit scores and less equity could still very well save money on their mortgage by refinancing at the right time and by taking advantage of the right mortgage programs.

refinance home
Looking into refinancing your home is a very smart decision.

Which brings us to Varner’s second mistake commonly made by borrowers.

“Some borrowers think that there is a “one-size-fits-all” formula that determines whether or not they should refinance,” he says. “Such as, ‘Rates must be at least one percent lower than my current rate in order for a refinance to be worth the expense and hassle.’

“Nothing could be further from the truth. Everyone’s financial circumstances are unique! A mortgage is nothing more than a financial tool. It is always worthwhile to assess whether you can use that tool more effectively for your family’s benefit, particularly in a low rate environment. One family might consider a $200 monthly savings to be no big deal, while another family could see it as a life-changing event.”

Varner adds that the laws regarding mortgage interest deductibility as well as Home Equity Line of Credit interest deductibility have changed since the most recent tax reform act was passed in 2017, which could make refinancing a lucrative move for many who fall outside of the standard guidelines for refinancing.

Don’t leave your hard-earned money on the table. To determine if you might benefit from refinancing in today’s low mortgage rate environment, contact the trusted mortgage professionals, like Roy Varner, at AmCap Home Loans. Chances are, big savings are in your future.

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