Now Is The Time To Refinance Your Home

The Federal Reserve headlined the news on Sunday morning as Mortage rates get cut a full percentage to nearly zero. Chairman Jerome Powell quickly briefed the press stating that with coronavirus effecting so many lives, the second quarter was bound to be weak and since we don’t know how long the pain of the virus is going to last fiscal policy needed to help.

Powell continued: “The thing that fiscal policy, and really only fiscal policy can do, is reach out directly to affected industries, affected workers,” Powell said. “We do know that the virus will run its course and that the U.S. economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit.”

This is big news as the key rate is now zero to 0.25% matching the record low, which was hit in 2008 during the financial crisis. With mortgage rates hitting an all-time low of 3% in early 2020, it’s a good idea to take advantage of the low rates and refinance your home now. This is especially true if the interest rate at which you obtained your original mortgage is higher than the current mortgage interest rate—which it probably is.

A home mortgage refinance is a process that enables you to replace your existing mortgage loan agreement with a brand new agreement, based on new terms, including a new interest rate and payback period. Getting a home mortgage to refinance loan is usually done to either pay off the loan faster or reduce the amount of the monthly payments.

When you obtain a home mortgage refinance loan, it pays off the original home mortgage so you are no longer responsible for it. Instead, you are now responsible only for the new mortgage refinance loan. Just as you had to apply for the original home mortgage loan, you must apply for the home mortgage refinance loan, which means going through a new loan paperwork process.

The terms of the home mortgage refinance loan you apply for will depend on your financial situation and goals. To determine what terms will be best for you it’s helpful to consider popular reasons why a homeowner would refinance their mortgage. In this particular situation with the coronavirus effecting our daily lives the mortgage rate dropped significantly so, you will want to take advantage of the low rates and refinance your home.

Reduce your monthly payment. Most homeowners are budget-minded and want to keep monthly expenses as low as possible. A home refinance can help with this by taking advantage of the low rates. If you want to reduce your monthly home mortgage payment there are a few options to consider.

If you have a long-term 30-year mortgage on your home that you’ve paid off for a number of years, refinancing the lower amount for an additional 30-year term, and at a lower interest rate, will decisively lower your monthly payments. However, the short-term benefit of lower monthly payments means you will pay out more overall because you are extending the time period of the loan.

Pay off the home mortgage sooner. Say you’ve paid for 10 years on a 30-year mortgage. Now you can get a lower interest rate and refinance the amount you owe in a 15-year mortgage loan. This reduces the time period and, at a lower interest rate, will assuredly lower the overall amount you will pay on the loan. However, the long-term benefit of paying less will mean your monthly payments might be slightly higher due to the 5 year reduction in payoff time period.

Obtain home equity cash. If you borrow more on your home refinance mortgage than you currently owe on your home, you can get home equity cash for the difference between the amount owed and the amount of the loan. Having a home equity payment can help you conduct home maintenance, home repairs, pay off bills, or take a vacation.

Switch to a fixed-rate loan from an adjustable loan. Assuming the home mortgage loan interest rate is exceedingly low, if you currently have an adjustable rate, switching to a fixed rate mortgage loan can lower your monthly payments and assure that you will pay back the same low monthly rate for the term of the loan.

Get rid of FHA or private mortgage insurance (PMI). If you have adequate property appreciation or enough of the principal paid off, getting a home refinance loan can enable you to remove the obligation to pay mortgage insurance. This will also reduce your total monthly mortgage payment.

There are multiple criteria to consider when deciding whether it’s a good time to refinance your mortgage.

Current interest rates. Lower interest rates are much more favorable than higher rates. If you are able to get a fixed rate that is rather low, you will benefit by long-term low payments.

Credit score. The higher your credit score is, the lower your monthly payments will be. If your credit score is lower now than when you obtained your original mortgage, it could offset the gains achieved by a lower interest rate. But if your credit score is higher, it will definitely augment those gains.

It pays to have good credit! As a general rule of thumb, the higher your credit rate the more likely you will be approved for a refinance loan and the lower it will be. For instance, a homeowner paying a $250,000 loan with a 640 credit score will usually pay about $2,500 more per year than a homeowner who has a 760 credit score.

Time-period of refinance loan. Remember that with a refinance loan you can submit to set the payback period to whatever time frame you want. Say you’ve paid on your home mortgage for about 5 years, but the interest rates are lower and your credit score higher. It makes sense to refinance, but you don’t want to start the 30-year period all over again. You can set the payback time period to 25-years to keep on track with your previous mortgage, and the refinance will lower your monthly payments.

The ultimate test of whether the terms you want make sense insofar as your budget and loan goals is determined by a mortgage refinance calculator. You can readily find these online or with a financial institution. In either case, you need to know exactly what your payment schedule looks like and how much you will pay overall with varying payback periods. Doing the research to take advantage of low rates and refinance your home can better your financial future.

Make sure to shop around for the best deal! When you approach a bank to refinance, they have 3 days to get back to you after all the completed paperwork has been submitted. So you should get a reliable answer on the deal they can offer you fairly quickly.

Getting a home mortgage refinance can be a great opportunity to use the money you save, or the equity you reap, to make home repairs. Like everything else, your home experiences wear and tear, and needs preservation and renovation as it gets older.

SFW Construction is a full-service general contractor that’s been in business since 2005 with experience in home remodeling, renovation and repair. We provide carpentry, siding repair, roofing, structural renovation, weatherproofing, and just about anything your home may need in the area of repairs and improvements.