I’m sure you’ve already heard the news, but mortgage rates are down significantly over the past year or so. Many people are talking about getting into a fixed mortgage with rates under 5%. That’s pretty significant when you consider that just a few years ago most people were getting 30-year fixed loans for anywhere between 6-7%.
So, there has been a lot of talk about refinancing. Obviously, if you can chop two points off your current mortgage, that can result in tremendous long-term savings and even lower your monthly payment. But as I recently talked about, the rates you hear about on TV and see online might not be what you get and refinancing may not make sense in some situations.
In fact, one of the problems people were having in the past when trying to refinance was having enough equity in their home. Typically you need to have at least 20% equity in your home before you’d be eligible to refinance. Well, when you consider how real estate values have plummeted recently, even if you had a nice chunk of equity a year or two ago, you may not have any now leaving you stuck with your current mortgage. Luckily, there is new help available. Part of the new financial stability plan includes the Making Home Affordable provision that opens up the possibility of refinancing to millions of Americans. There are a few restrictions, but you can see if you qualify. If you do qualify, you may be able to refinance even if you don’t have perfect credit and the required 20% equity.
We Are Looking Into It
Initially, we haven’t really through much about refinancing. We don’t plan on staying in this home more than about 4 years, don’t have as much equity as we’d like thanks to the declining real estate market, and figured closing costs and/or points would make the refi less attractive. But, our bank contacted us and said they might be able to offer a no closing cost refi. This makes the offer a little more interesting. Obviously, they will get their money one way or another so it would probably be offset by an interest rate a few basis points higher, but I think it’s worth checking into.
So, we sent in an application and are just waiting to hear back. The real key for us is that we’re looking to go from a 30-year to a 15-year. Even if we could only get a 15-year at 5% (which is relatively high by today’s standards) our monthly payment would only be about $175 more a month. The real kicker is that right out of the gate a 15-year loan would be putting over 3 times as much money toward the principal compared to where we currently stand with the existing mortgage. That’s a good baseline to think about going in, though the numbers will obviously work out differently I’m sure.
It will be interesting to see what they offer, if we qualify at all.
What About You?
What have you done lately? Have you already refinanced and locked in a pretty good rate? Are you upside down and can’t get any help? Have you tried to refinance but can’t make the numbers work out to justify it? I’m interested in hearing your stories. What kind of rates are you seeing, and how easy has it been where you live to get a refinanced mortgage.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
Rates nowadays are ridiculously low but I wonder if I should take to refinance or take advantage of the deals now before they rise up again.
We are renting - and with the job market being what it is right now, I don't think we'll be buying any time soon. Also, real estate prices in our town have barely budged, meaning that they are still completely unaffordable.
Guess what the motgage people fail to fully explain. The beginnings years of a mortgage are hugely expensive. In the first years of any 30 yr loan, for every dollar you send your lender 80 cents or more go to interest.
Weigh these costs carefully when looking at a refi. I know I used to work for big mortgage companies and we loved refis for more reasons that you know.
There is new banking technology that emmpowers people to kill a mortgage completely 2 to 3 times faster. Its ownership not loanership that should be your focus.
I'll tell you what your bank doesn't fully explain to anyone.
I've heard so many people talking about no-cost or low cost refi or loan modifications but our credit union hasn't came up with anything similar. We are not qualified for any of the new gov programs either because our loan is not owned by Freddie or Fannie. *Sigh*
We're looking into it as well. The rates are great, and we figure if we can refi into a 15-year mortgage, we'd be in even better shape. The rate is so much lower, and we've made enough headway since buying the home, that a 15-year mortgage payment would be only $100 more per month than what we pay now on our 30 year.