We all know mortgage rates are at an all-time low, but just when homeowners thought they couldn’t get any lower, they did – eight times over. A 30-year fixed-rate mortgage hit a record low of 2.88% during the first week of August 2020, according to the Federal Home Loan Mortgage Corporation, a.k.a. Freddie Mac, the lowest rate ever seen in the almost 50-year history of the iconic survey.
What does this mean for homeowners? When mortgage rates are low, it makes buying a home much more affordable. You may also qualify to purchase a more expensive property than what you thought possible. If you already own a home, savvy homeowners know low-interest rates offer refinancing opportunities to save money, reduce overall debt, or to put cash in their pockets simply. According to the Mortgage Bankers Association, homeowner applications for refinancing are 111% higher than last year.
These super-low mortgage rates are fantastic news for homeowners who can take advantage of the slumping COVID-19 market without risking your health, as many states now allow for virtual mortgage processing, including mobile notary services.
But before making any refinancing decisions, you’ll need to evaluate your financial health, as well. You could find instant financial relief if you choose to refinance in these somewhat uncertain times, but it needs to make financial sense for your situation. What is mortgage refinancing? It’s replacing your existing mortgage with a shiny, brand new model more suited to everyone’s ultimate financial goals of saving cash. Here are four refinancing options that make sense in today’s housing market:
Save money by obtaining a mortgage with a historic all-time low rate.
Securing a lower interest rate – with a benchmark being a minimum 1 to 2 point decrease in the annual percentage rate (APR) from what you currently have – is a huge incentive to refinance your mortgage. Besides saving money over the lifetime of your mortgage, you can decrease your monthly payment and build up your home’s equity.
However, refinancing will once again bring about those dreaded closing costs – generally 2 to 6% of the mortgage loan amount – back into the picture, but the savings with a new 30-year fixed interest rate could easily outweigh this expense. Closing costs can usually be rolled into the balance of the loan. As long as you plan on living in your home for several years, the closing costs will be recouped as mortgages are constructed so you’ll pay the majority of interest owed during mortgage’s first half of existence. But if you don’t plan on staying, the closing costs could negate any possible savings. Consider paying any closing costs with cash if you’ve got it to spare.
Change from a higher adjustable-rate to a lower, secure fixed-mortgage.
Adjustable-rate mortgages (ARM) tend to come in lower than a fixed-rate mortgage, but when rates are this low, converting to a fixed-rate mortgage will give you peace of mind in knowing you’re making a sound financial decision especially if you think rates have finally peaked. Sam Khater, Vice President and Chief Economist of Economic and Housing Research at Freddie Mac, states, “We expect rates to stay low and continue to propel the purchase market forward. However, the main barrier to rising demand remains the lack of (housing) inventory, especially for entry-level homes.”
Cash-out refinancing: consolidate debt or use your accrued home equity.
Home equity is calculated by taking the market value of your property and subtracting your current outstanding mortgage balance. Do you know the current value of your home? DomiDocs provides you with the current TrueValueIndex®, so you’ll always know the most up-to-date value of your property.
If you decide to do a cash-out refinance, your home equity can be used to pay for whatever you choose in life, whether it is home oriented or not. It can be used to consolidate additional high-interest debt such as credit cards, automotive loans, home improvements, student debt, etc. The key takeaway here is to be sure you can resist the temptation to spend once your debt is seemingly relieved.
Save money by shortening the overall term of your mortgage.
Instead of a 30-year mortgage, you could consider a shorter-term 15-year mortgage, which will cost less interest overall but will increase your monthly payment obligations. You’ll need to make sure any potential rise in your monthly mortgage amount will remain financially sustainable for your budget over time.
Depending on your original interest rate, many times refinancing for a shorter term can result in little or no change in your monthly mortgage payment. Doing a few math calculations will help to decide what financial choice is right for you. Here’s a practical example:
For a $100,000 home, a 30-year fixed-rate mortgage at a 7% financing rate would result in monthly payments of $659. Refinancing this mortgage into a 15-year fixed-rate term at 3.19% would result in slightly increased monthly payments of $699 while cutting your overall mortgage term in half.
Shop around for the best lender mortgage refinancing rates.
If you’re searching to find the lowest possible interest rate when it comes to refinancing, be prepared to comparison shop. If they won’t price match and you’re not happy with the refinance rates your current mortgage lender has presented you, consider online lenders, credit unions, or brick and mortar banks. Besides checking out interest rates, you’ll need to compare any possible fees to be charged and how they’ll be handled; some no-closing-cost mortgage options sound great until you find out they come with a higher interest rate as a trade-off.
DomiDocs can help you keep track of different mortgage rates compared to your current rate on our dashboard. Using our Service Provider Directory, allows you to keep notes, sort, and easily contact them when you’ve made your decision.
While thoughts of refinancing your home can be more than exciting, it’s important to realize many lenders have raised the minimum borrowing standards during this tumultuous COVID-19 marketplace, and so it may be harder to qualify financially. Some lenders now require decreased debt-to-income ratios and increased credit scores during these uncertain economic times. You’ll also need to be organized and ready to present your financial documents at a moment’s notice in order to help make the refinancing process go as smoothly as possible. It’s a fact that 40% of Americans cannot find a property document when needed. DomiDocs offers a secure homeowners’ document storage platform where all of your important documents are accessible 24/7.
Even though an impending second wave of COVID-19 is likely to hit this fall, if health experts develop a vaccine it’s also likely the housing market will take off, which brings about higher mortgage rates. On the other hand, if America continues to be stuck in this uncertain economic scenario, it’s likely the Federal Reserve will continue to depress interest rates, which in turn helps to solidify lower mortgage interest rates.
Whatever is going on the world around us today, you can be assured DomiDocs has your back as a homeowner. DomiDocs can help provide continued protection through its user-friendly online platform where you won’t need to worry about scheduling maintenance, wonder where your documents are, or what the current value of your home is.
DomiDocs takes care of all this and more, even during these somewhat chaotic and unprecedented times.
Author: Connie Motz