Mortgage Rates Fall – Should You Refi?

Should you Refinance?

Should you Refinance?

You may have heard – mortgage rates just fell clearly under the 4% range and are now in the 3% range on Conventional, FHA, VA and USDA 30 year fixed loans (depending on credit, must be owner occupied and sufficient equity per loan type).   To help with the barrage of solicitations and over-promising postcards you receive, I wanted to send you a “should I refinance” guide to help you decide what is best for you and your family relative to today’s historically low mortgage rates.

Mortgage Rate Drop by 1% to Refi Rule of Thumb

If you ask Uncle Larry “when should I refinance” he will likely say “you should refinance when your rate drops at least 1% – everyone knows that.”  While this may be true in some cases, it is the worst way to singularly determine if you should refinance.  Here are some examples to illustrate why this could keep you from reaping refinance benefits:

High loan amount:
If you have a loan amount of $600k loan, a 1% drop in your rate would lower your payment somewhere around $351 per month.  Great savings!  However, if you refinanced that same $600k loan for a .5% lower rate you would still save you $175 per month.   This is where things get interesting.  What if the .5% lower rate is as low as rates ever go and you held out for a 1% lower rate.  You would be paying $2100 per year to wait for a rate that may never come.

Low loan amount:
If you have a $100k loan, a 1% drop in your rate would lower your payment somewhere around $56 per month.    This is hardly worth going through a refinance

There may be other considerations besides reaching the fictional 1% drop milestone to refinance.  For example, you may have FHA mortgage insurance that can be eliminated in addition to lowering your rate.  You also may be able to lower your term (for example: from a 30 year to a 20 year) and keep your payment about the same as it was.  While this does not save you monthly it will likely save you thousands over the life of the loan due to the drop in term.

8 Questions to Ask When Considering a Mortgage Refinance:

  1. Do I pay mortgage insurance?
  2. How much is my monthly mortgage insurance?
  3. Is mortgage insurance going away on its own and if so when?
  4. How old is my loan (how many months/years do I have left)?
  5. Would I benefit from a short-term loan?
  6. What is the true hard cost of a refinance for me?
  7. What are current rates?
  8. What is my mortgage rate?

As strange as it sounds, ignore the “1% rule of thumb” and consult with The HOUSE Team to find out how you may benefit from a refinance.  It is a no cost consultation so call or email us today!

By Jeremy House

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Jeremy is the Founder of The HOUSE Team and a Sr. Loan Officer/Branch Manager with PrimeLending. Over the past several years he has ranked in the top 1% of all loan officers nationwide and one of the top 200 loan officers in America. In the mortgage industry, the devil is in the details. Jeremy prides himself on being a student and an expert when it comes to everything mortgage related.

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