Refinancing Your Home Mortgage
If you haven't refinanced your home this year, there are a few of incentives to encourage you to consider doing so now. Harold Perkins of Galaxy Lending Group, a Rosie-Certified Partner, offers some food for thought:
1 | Interest rates
Interest rates have continued to drop throughout the year, and you are likely paying more than the going rate.
2 | New Refinancing Fees Coming Dec. 1st, 2020
A new fee that will increase your cost to refinance begins December 1st. The Federal Housing Finance Agency issued a surcharge of 0.5% of the total finance cost on each refinance. The average added cost to a refinance is $1,500.00.
3 | Market Reaction
There is no way to predict how long these interest rates will hold. With the election next month, the market will react based on lender confidence. Anticipated changes in government policy and perceived confidence or lack thereof are always factors that influence rates immediately following an election.
4 | Home equity
Many homeowners, who have been in their home for more than a few years may have more equity in their home than they realize. It is possible to extract some of that equity in the refinance process. They often find that there is enough equity to pay down debt or complete home improvement projects. Their mortgage balance goes up in many cases but their monthly payment won't due to the historically low interest rates.
How to Know if Refinancing Makes Sense For Your House:
A common way of thinking for homeowners who are considering the benefits of a refinance is to look at it in terms of the current actual interest rates, the savings from the proposed new rate and consequential savings on their monthly mortgage payments. However, the upfront lender and closing costs need to be factored in. The federal mortgage laws require the lender to reveal all of these costs up front.
Perkins offers a process to help homeowners decide the true benefits a refinance would have on their finances. A key component of that process is time.
- A good place to start is to research the up-front costs to refinance and then determine how much time it would take to recoup the cost. How long would it take for the savings provided from a lower interest rate and resulting lower mortgage rate take to cover the lender and closing cost?
- Next, determine how long you plan on being in the house.
- Finally, if you will be in the home long enough to cover the upfront cost with the reduced mortgage rate, then it is worth it to move ahead.
If you don't plan on being in the house long enough to recoup the cost and will only be saving on the monthly mortgage payment, then it doesn't make sense to refinance.
Perkins allows that a homeowner may find a mortgage company offering no up-front fees. This can be very tempting and can makes sense if the closing costs don't offset the benefit of the offered rate.
Moving Forward With Refinancing | What To Expect:
Here is what to expect if you have never refinanced before or if it has been awhile since you have done so.
This is where the process starts. The worth of the home must be determined by the lender to ensure that the market value of the home supports the loan and is a main qualification for refinancing. In pre-COVID-19 days every home that was refinanced was required to have an appraisal. With the extraordinary precautions in place for COVID-19 it is now a common practice for the lender to rely on the estimated value of the area without an appraisal. Perkins estimates that only 1 home in 3 is required to have an appraisal at this point in time.
NOTE: If an appraisal will be required to determine a home's value, consideration will be given to recent sales in the neighborhood. With a required appraisal, Perkins suggests waiting until there have been homes that have sold for a fair value in your area. A neighborhood with homes that have not sold in the last 6 months, have pending but not closed sales, or sold undervalue for some reason can all contribute to a disappointing appraisal.
Documentation to be submitted:
- W-2's for the last 2 years
- Tax returns for those who are self-employed.
- Bank statements
So, if you haven't refinanced in the last year or more, now is really a good time to think it over while interest rates are low and before the FHFA surcharge begins in December. And remember, underwriters are swamped requiring longer processing time. Perkins says to make sure your lender locks the current rate to guarantee that you get the interest rate you are anticipating.
Sponsored By: Galaxy Lending Group
Galaxy Lending Group provides home loans and personalized mortgage counseling to Arizona, California and Oregon residents looking for a reputable and responsible mortgage lender. With two decades of experience in residential lending, we can find you the right loan at the best rate even in today's tough economy. Our loan officers and support staff will help you choose the most sensible mortgage with the utmost confidence.
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