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Should I Refinance My Mortgage?

Insights

Mortgage rates are at near record lows, so should I refinance my mortgage?

Many of you may have heard that mortgage rates are at near record lows. On June 11th, the average rate on a 30-year fixed-rate mortgage fell to 3.237% and the 15-year fixed-rate mortgage dropped to 2.774%. These rates are almost 1% less than where they were a year ago. That’s all fine and great, but is now the time to refinance, especially during unprecedented times like these? With millions unemployed and underemployed due to COVID-19, in addition to health, many have been worried about just being able to make their mortgage payments and some have sought assistance.  I mean, don’t we already have enough on our plates?

I am personally in the middle of a refinance. I watch rates regularly and decided to take advantage. Many lenders are overwhelmed with demand and some can’t keep up and are not accepting applications at this time. My lender was all too happy to oblige but gave me the heads up it would take 90 days or longer. No problem for me as I like to take my time. So, I’m a month into the process and I’d like to share some pros and cons of refinancing and mortgages in general:

  1. Take the time to assess your current mortgage thoroughly and how the refinance will benefit you. I use Dave Ramsey’s mortgage payoff calculator (Mortgage Calculator). It’s a great way to see how much interest you’ll pay over the life of your current loan and compare it with various options. It’s also useful if you’d like to see how extra payments can accelerate payoff and help you save on interest.
  2. Review your credit score and get your finances in order first. The interest rate offered is largely based off of your credit score. 
  3. Make sure you have enough equity. The loan-to-value should be below 80% to avoid mortgage insurance.
  4. Make sure your employment is secure. Lenders may not want to proceed if you are on unemployment, even temporarily.
  5. Shop around! Not all lenders are created equal. Typically closing costs can range from 2% to 5% of the loan’s principal and application fees. Also, what is their rate lock process. My lender allowed me a one-time rate float down, which meant if rates went down after we started the process I could pay .25% to lock in the lower rate.  Another factor is if they may sell your loan. Changing servicers can be frustrating.
  6. Pay closing costs out of pocket if possible. 
  7. Ask your lender if they offer bi-weekly payments. This feature allows you to make one more payment a year. 
  8. Try not to extend your loan duration or send extra payments if you don’t want to be on the hook for a much larger payment. 

As you can see, it’s not a simple decision. There are a lot of factors that play into whether or not it’s a good financial choice. Sometimes after all of the information is gathered, I also suggest a gut check. Financial transactions like these can be exhausting and may exacerbate an already stressful time in people’s lives. Think about what works best financially AND emotionally for YOU. When both are considered, the best decisions are made.

~ Diana Sailler