Is Now the Right Time to Refinance Your Mortgage?

Is Now the Right Time to Refinance Your Mortgage?

While most people across the U.S. are self-isolating in their homes to protect themselves and loved ones from the COVID-19 outbreak, some are also using the “quiet time” to refinance that very home. In fact, in recent weeks, as economic uncertainty about the coronavirus drove down interest rates, homeowners rushed to apply for mortgage refinancing in numbers not seen in over a decade,1 according to the Mortgage Bankers Association. During the first week of March, applications reached their highest level in nearly 11 years, an influx that triggered many lenders to temporarily turn down refinance requests.

The promise of saving money by refinancing is tempting for many Americans, especially as job security and income stability remain in limbo, but should you refinance your mortgage right now? Here’s some expert advice to help you decide.

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Today’s mortgage rates
Mortgage rates spiked in late March,2 but they’re sliding downward now. The average rate for the benchmark 30-year fixed mortgage is hovering below 3.5% and experts predict continued near-record lows. That said, mortgage rates can fluctuate week to week, and even day to day – especially given the coronavirus-fueled turmoil in the markets. Use this Affinity tool to calculate your mortgage refinancing options based on today’s rates.

Two refinancing options
When you refinance a mortgage, you swap your existing home loan for a new one with more favorable terms, which often means a lower interest rate. And lower interest rates equate to lower monthly payments – welcomed savings whether your income has taken a hit due to COVID-19 or not. This is called a rate-and-term refinance. Another refinancing option is a cash-out refinance, which allows homeowners to replace the existing mortgage loan with a new one that’s higher than your current loan balance. You’ll receive the difference in cash, yours to use as you see fit. Putting money back in your pocket to help you tackle near-term essential expenses is an appealing option but you should proceed with caution. A cash-out refinance could increase your monthly mortgage payment rather than lower it, leaving you with higher costs to grapple with during a period of extended economic uncertainty.

The “fine print”
Yes, refinancing can be a good way for homeowners to create cash flow. And yes, that extra savings or extra money, depending on which type of refinancing you choose, is much-needed right now. However, in order to be able to take advantage of the lower interest rates your credit score plays a major factor. You need strong credit and a steady source of income – something many Americans, unfortunately, may not be able to claim right now.

Also, there are the associated “junk” fees to consider. “Junk fees” is an industry term that refers to certain fees some financial institutions charge, including processing, application, and underwriting fees, which can quickly add up. Affinity doesn’t charge our members these fees. However, closing fees still apply. Just as you pay closing costs to finalize a regular mortgage, you are responsible for closing costs when you refinance too.

Make sure you plan to be in your home long enough to make refinancing worth it. Here’s a hypothetical example. Your refinancing option is calculated to shave $120 off your monthly mortgage payment. Your closing costs are $2,400. You won’t break even for 20 months, which can work for you if you have no plans to sell in the next few years.

Ready to refinance?
If you’re serious about refinancing, now is the time while your income is steady and mortgage rates are low. Talk to an experienced mortgage loan officer about your options today.

For additional information and updates from Affinity about COVID-19, please visit https://www.affinityfcu.com/banking/we're-here-for-you.aspx

                                                   

This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments regarding the matters related to your condition are made.  

1 Retrieved from https://www.usatoday.com/story/money/

2 Retrieved from https://money.com/mortgage-rates-refinance-or-wait/