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Refinance Your Mortgage Without the Stress

Every refinance comes with a little anxiety. Maybe you’ve heard it’s expensive or requires lots of paperwork, but there are a few ways to streamline the process and avoid the stress.
Have you seen today’s interest rates? If not, let me be the bearer of good news: in March, 2020, 30-year fixed rate mortgages are averaging 3.66% and 15-year fixed mortgages are averaging 3.15%! Depending on the source, these may be considered historic lows. Even if they’re not, these rates are really good and they may have you wondering if now is the time to refinance your mortgage.
 

To answer that question, you have to answer a few others.

  • Do you have a mortgage with an interest rate at least a half point higher?
  • Do you have equity of at least 10% to 20% in your home?
  • Do you have a credit score of 720 and above – or
  • Do you have a credit score that has improved substantially since you took out your mortgage?
  • Do you have an adjustable rate loan?

If you answered any of those questions with a yes, it’s time to at least look at a refi. The ultimate barometer of whether a deal will make sense for you will be, shopping for a rate and whether you expect to stay in the home long enough to recoup the cost of the refinance.

I’ll let a quick example do the talking: If you took out a $200,000, 30-year fixed mortgage in 2018 at an 4.5% interest rate, your monthly payment would be $1013 (without taxes and insurance). Refinance now at a rate of 3.66% and your new monthly payment could be $916 — a savings of $97 a month. If the refi cost 2% of the home price or $4,000, which is typical, you’d have to be in the home 41 months to break even. If you’re not planning on staying that long the deal isn’t worth doing. If you’re planning on staying longer, refinancing your home loan may be a great option for you.

Convinced? Here are some tips to make refinancing your mortgage as painless as possible:

  • Do your research. Shopping around for the best rate almost always pays. But don’t write off your current lender. Sometimes mortgage lenders offer a discount to current customers who refinance with them, so find out if yours does, and then compare their terms with the terms at other lenders. By sticking with your existing lender, you may also be able to get away with a “streamlined refi” which is more of a loan modification than a complete refinance. That can save you a significant amount in closing costs.

  • Look at overall costs. If you’ve been paying your mortgage for a long time – generally 15 years or more – it may not make sense to refinance over the long term. Your monthly payment will go down substantially, but at this point in your current mortgage, most of your payment is being applied to principal (for the first 15 years or so, the opposite is true – the bulk of your payment goes to interest). Refinancing, unless you do so into a shorter-term term loan, may mean building less equity.

  • Watch your credit score. Inquiries, like those that occur when you apply for a mortgage or car loan, can ding your credit score. But there’s a loophole in the formula that helps: If you confine mortgage loan shopping to a 30-day period, FICO will recognize that you’re shopping around for a loan and treat all the inquiries as one.

Whether you want to reduce your loan’s interest rate or take cash from your home’s equity, we can help you get the most from your loan refinance. Our real estate specialists make the process convenient for you from start to finish. Plus, our low-interest rates and accelerated application process are here to make your experience easy and stress-free. 


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Article courtesy of SavvyMoney

 
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