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.