Throughout 2018, most talk of interest rates for 2019 was focused on projections that they would increase. Industry experts warned consumers that the rates would quickly surpass the 5.0% mark. And for a brief time at the end of 2018, this seemed to be the case. However, we suddenly saw the rates drop back down, at times even below 4.0% (on a 30-year fixed rate mortgage). For many, this can mean it’s the perfect time to buy a new home. For anyone else who has already purchased a home at a higher rate—perhaps something closer to that 5.0% mark—this is a great time to look at refinancing.
What is Refinancing?
When we talk about refinancing a mortgage, we are essentially replacing your old mortgage with a new one at a lower interest rate. This is a great option for several scenarios:
We will be focusing on the first point, but it is important to note that refinancing is a viable option for several scenarios. If you have questions whether any of these situations apply to you, we encourage you to contact us so we can discuss your options further.
What Difference Does the Rate Make?
How much of a difference does one percentage point really make? It may seem insignificant, but when examining the total purchase price of homes, and the fact that payments are stretched out over 30 years, the numbers add up.
As an example, let’s look at a $250,000 mortgage. At an interest rate of 5%, your monthly payment (including estimated property taxes) is $1842.05. That same amount financed at 4% drops your monthly payment to $1693.54. That’s a savings of $148.51 per month. Nice, but not huge. But let’s look at what that looks like over the course of 30 years, or 360 months. That $148.51 savings per month just became $53,463.60. Now that’s substantial.
Before You Refinance
Now that you’re excited at the potential savings you can get by refinancing, the next step is to make sure you are ready to move forward. Just like when you first applied for that mortgage, you want to take several steps to ensure you are in the best possible position to qualify for a better interest rate.
The Next Step
Everything we have mentioned to this point is a high-level overview. Specifics can vary, so we always recommend talking with a loan officer to see what we can offer you based on your specific situation. Factors like the total value of your home, whether you have a VA or FHA loan, and the amount of equity you currently have all play a role in determining how good of an interest rate we can offer you. When you are ready to pursue your options, call us to set up a time to talk.