More US homeowners are choosing to refinance, thanks to lower interest rates amid the Brexit vote. According to Mortgage News Daily, the Mortgage Bankers Association (MBA) Refinance Index fell back by 1 percent for the week ending July 15; however, the refinance share of mortgage applications continued to increase, rising 64.2 percent from 64.0 percent the week prior. Continue reading Mortgage refinance increase as rates affected by Brexit
Mortgage refinance applications have been increasing lately, leading many to consider if now is a favorable time to do so. With mortgage rates remaining near historic lows, and more homeowners regaining equity, it’s no real surprise that more Americans are considering a refinance – whether they want to switch from an adjustable rate to a fixed rate, or simply lower their rate altogether. Continue reading Is it a good time to refinance?
By Anya Martin March 12, 2015 1:30 a.m. ET
By Brett Mosello January 2, 2015 9:40 a.m. ET
The process of refinancing a home mortgage can be almost as challenging as obtaining it the first time around. This leads many to avoid the process even when there are substantial benefits to doing so. In addition, the cost of refinancing runs between 3 and 6 percent of the loan amount, requiring that homeowners have a substantial up-front payment. However, once homeowners understand the actual amount of money that they will save over the life of their loan, they realize that refinancing is often the smartest financial move to make. Here are some of the benefits of refinancing and advice on when they make sense.
Lower Interest Rates
One of the main benefits of refinancing a home loan is to obtain a lower interest rate. A lower interest rate helps a home owner in several ways. First, it reduces the monthly payment because the interest portion is reduced. Secondly, more of the money is going toward the principle, so equity is built faster. When the up-front refinancing fees are taken into account, it typically makes sense to refinance when the interest rate is two percentage points lower than your current loan rate. However, in some cases it makes sense to refinance when it is only 1 percent lower, as you will see below.
Shorter Loan Terms
Another benefit to refinancing is that is allows homeowners to reduce the number of years that they pay on the loan. This works by converting an existing loan to another loan at a slightly lower interest rate. When all is said and done, the homeowner’s monthly payment stays the same or increases only slightly, sometimes by less than $20 per month. However, they are able to shorten the life of the loan from say 30 years to only 15.
Change the Loan Type
Homeowners who were caught up in the lending frenzy before the housing collapse may still have loans that aren’t desirable, such as interest-only or adjustable-rate. These homeowners now realize that they haven’t made a dent in their principle or that their interest rates are sky rocketing. The answer is to refinance the old loan into a new conventional loan with a fixed interest rate.
Utilize Equity or Consolidate Debt
In some cases, refinancing to consolidate debt makes financial sense. For example, if a homeowner has a first and second mortgage, or a home equity line of credit, these can all be consolidated into a single low-interest loan. Similarly, homeowners can do a cash-out refinance where they receive a check for the current amount of equity they have in the home and use it to pay off debt or make needed repairs.
While these refinancing benefits can all result in substantial savings for home owners, there are other considerations, such as how long they plan to stay in the home. In general, it takes between two and five years for most homeowners to recoup the up-front costs of refinancing. Thus, for those who want to move sooner than that it may not make sense to refinance. However, for homeowners who are in it for the long haul, refinancing can reduce the long-term costs and time commitment for the home loan.
If you are wondering whether refinancing your home makes sense, contact Luxury Mortgage and let us discuss your refinancing options. We will help you sort through the confusion and pick the refinance loan that is right for you.