Whether it was just last year or ten years ago, you agreed to a specific market rate and terms to pay off your home mortgage. Since then, a lot may have changed in your life; your job/position, your car, your cell phone, and more. If these items aren’t stagnant, why should your mortgage be? Refinancing your mortgage loan depends on a variety of factors and has to be done based on current market conditions, but it’s safe to say that right now is a great time to explore refinancing your home loan.
Factors that Affect Your Decision to Refinance
With the Federal Reserve’s two rate cuts this year in July and again in September, interest rates are hard to beat right now. The federal funds rate, which controls costs like mortgages, is now sitting under 2%. According to Freddie Mac, if you got a 30-year fixed-rate mortgage a year ago (November 2018), the average interest rate has dropped by about 1.5% since then. By sticking with such long and pricey terms, the costs will add up significantly over the years and you’ll end up spending more for the same home.
There are other factors beyond interest rates to consider when exploring refinancing on your home loan:
The equity in your home is important to assess prior to refinancing your loan. In most parts of the United States, the value of homes has risen in recent years. You should be aware of your home’s new value, whether it has risen or dropped. If the value has dropped, do you really want to be re-investing in the property? If you’re refinancing, you want to be absolutely sure that your home is the place you want to live for an extended period of time.
Your Income and Debts
Also commonly known as your debt-to-income ratio, mortgage lenders will want to know that you have a stable job history with a source of good income, a safety net of savings, and minimal debts to cover, like student loans. Before refinancing, make sure that you have great job security with a steady stream of income that allows for optimal payments, no matter the term length.
Your Credit Score
Refinancing means more favorable rates, but in order to get these favorable rates, you have to have an equally favorable credit score to your name. While you may be able to secure a new loan, the interest rates might only be marginally better with a lower credit score.
Refinancing Closing Costs
Before you jump to refinance your loan, it’s important to note that there are numerous additional costs associated along the way during the refinancing process. Often, there are refinancing fees like an application fee, an origination fee, and more associated with the total loan amount. While those may be changed, these additional costs are important to weigh as you explore refinancing options.
We’re Here to Help
With favorable conditions for home buyers right now, you have to assess if refinancing is right for you. Before locking down your refinancing terms, make sure you run a breakeven analysis that accounts for all of these factors mentioned, especially the closing costs, to assure that the new refinancing is to your benefit.
Are you still unsure if a home mortgage refinancing is right for you? Our team of loan originators is here to help you navigate your options and decide what is best for you. Get in touch with our team to find the right refinancing match.