It’s easy to forget that mortgage rates ran as high as 18% in the 1980s. Thanks to refinancing, even people who bought decades ago now enjoy much lower mortgages.
However, interest rates have climbed over the past 18 months, up to rates last seen in the early 2000s. So, if you recently signed on to a 30-year mortgage at 8% interest, refinancing likely is in your future.
“Lenders have a saying: ‘Date the rate, marry the house,’ said Fountain Valley realtor Nick White. “You can always refinance down the road.”
Simply put, refinancing is the process of replacing your existing mortgage with one that has more favorable terms.
Refinancing your home can whittle down your payments, help you pay off your loan quicker and provide an opportunity for pulling money out of your house.
U.S. Bank consumer mortgage experts Garret Carter and Misty Thorne offer this advice in deciding whether and when to refinance.
Even at just quarter of a percentage point lower, refinancing can reduce your monthly payments and cut interest costs by thousands of dollars over the life of your loan.
However, Carter and Thorne caution, reacting every time rates go down may not always be the right move. Consult your mortgage loan officer to figure out when to make the leap.
After all, the refinancing process isn’t free.
Sometimes the costs can be wrapped into the new mortgage rather than paid out-of-pocket at closing. In most cases, you also will need to foot the bill for an appraisal of your home.
That’s where math comes in. Let’s say closing costs are $2,000, but your monthly mortgage payment will be lowered by $200. You’ll recoup the closing costs in only 10 months.
Another advantage of refinancing is that you may opt for a shorter term.
For example, if you originally took out a 30-year loan and 25 years remain, you might consider renegotiating a 20-year loan. That would shave five years off your payments and eventually decrease the total amount of interest you’re charged.
Also, refinancing allows you to tap into some of the equity you’ve built. Refinancing for more than what you still owe essentially provides a low-interest loan for home improvements and other expenses.
Fountain Valley’s housing market is stable right now, said White, who works at Seven Gables Real Estate.
“Prices aren’t necessarily going up and people are still buying,” he said.
But once interest rates drop, White added, prices may increase as competition heats up.
“If you can afford to buy, now might be the time,” White said. “You can renegotiate your loan, but you will never be able to renegotiate the price of your house.”