With mortgage rates below 4% since May 2019, you would think that most people would have already refinanced but according to a recent Lending Tree survey, 49% of homeowners say they are considering a mortgage refinance in the next year. The report estimated that over a third of homeowners are have mortgages above 4% and 11% didn’t know what their rate was.
Slightly more than a third of the people surveyed regretted missing the opportunity to refinance in 2020 when rates did hit their historical low. Homeowners should not beat themselves up on this issue because the only way to know to tell that it hit bottom is after it has started going up again.
The current rates are very favorable to borrowers and some economists believe that when inflation is factored in, the rates are close to zero effectively.
While there are nine specific reasons people choose to refinance their homes, two are among the most prevalent: to lower the payment or take cash out of the equity. Most reasons include:
There are some commonly held myths about refinancing among homeowners such as:
If your current mortgage is a FHA, there is limited borrower credit documentation and underwriting program. The mortgage must be current and not delinquent, and the refinance must result in a net tangible benefit to the borrower such as a lower rate, lower payment or better terms. For more information, see Streamline or contact an FHA approved lender.
VA has a similar program if your existing mortgage is a VA-backed home loan. The purpose is for a borrower to reduce their payments or make their payment more stable. They must certify they are currently living in or did live in the home covered by the loan. The Interest Rate Reduction Refinance Loan, IRRRL, may be available.
USDA also has a program for current USDA direct and guaranteed rural homebuyers who have been current on their payments for 12 months prior to requesting the loan refinance. No appraisal or credit review is required. There must be a minimum of 40% net reduction to the PITI payment. More information is available.
Before refinancing your home, determine how long you plan to keep the home. If the reason for refinancing is to save interest by getting a lower rate, you may accomplish that immediately. However, if you plan on selling soon, you may not be able to recapture the cost of refinancing.
There are costs associated with refinancing regardless of whether you pay for them in cash, or they are rolled into the cost of the mortgage. These costs can range from two to five percent of the mortgage.
Call me at 971-337-9396 and I’ll refer you to a trusted advisor.