Summer is here, and you’ve probably heard about the record low interest rates. In an effort to stimulate the economy, the Fed has lowered rates to historic lows, meaning you could be getting the deal of the century on your mortgage.
So, is now the time to refinance?
In most cases, the answer is easily - yes. Consider your current rate.
If the rate at which you can refinance is lower than that of the original mortgage, you should consider refinancing. Keep in mind that your savings in interest needs to be greater than the closing costs of the refinance if you are to realize a net savings. Typically, a reduction in the interest rate by ½ to 1 percentage point is sufficient to consider refinancing.
A couple of options exist for handling a reduction in your interest rate. The method that provides the greatest long-term savings is to simply continue making the same monthly payments, allowing you to pay off your mortgage more quickly. Or, you can use the interest rate reduction to lower your monthly payments, which might be necessary if you've been having trouble making your current payments.
Do the benefits of refinancing matter based on what state I am in?
It depends on which state you are in. According to Business Insider, it’s easiest to save money by refinancing your mortgage in the following states: Montana, Idaho, Wisconsin, Oregon, Colorado, Iowa, Minnesota, Massachusetts, Nebraska, Washington, South Dakota, North Dakota, and Utah.
Not in one of these states? The good news is that the chances are still in your favor. Nationally, about 75% of applications are getting approved, so now is a good time to see if you can start saving by refinancing.
How long should I expect refinancing my mortgage to take (given the current situation with COVID-19)?
There’s one thing that’s becoming clear for many banks and lenders - that it now takes a little longer to refinance your home. If you're ready to refinance your mortgage, you should get a jump-start by ensuring that you’re prepared. According to ValuePenguin, it “takes for homebuyers in the United States to close on their home purchases (as of February 2019) is 47 days across all loan types.” And with the influx of refinancing demand due to rates dropping, it could be as much as 60 days before you get refinanced.
The good news is with Figure, homeowners have an efficient and easier way to make the most out of their home equity. Figure offers a fast, easy, and 100% online application process which typically takes about 15 minutes to complete. Everything can be done from the convenience of your home (including paperwork and closing). Check your rate today! <<link>>
How much should I expect to pay in closing costs?
The costs include charges that are normally associated with a mortgage application, such as the appraisal fee, title, settlement and recording fees as well as discount points, that can cost up to 2% of your total loan amount. A refinance may not be worth it if it takes too long to reach the break-even point, even if it will eventually save you money.
Assume for this example that a refinance will save you $150 a month on your payments, and the closing costs are $3K. It would take 20 months to reach your break-even point, meaning you would need to remain in your house for at least 20 months before a refinance would pay for itself. If you don’t plan to remain in your house for at least that long, then perhaps a refinance is not for you.
It’s important to determine if the refinance is worth it based on the anticipated closing costs, but now more than ever - it is an excellent time to consider refinancing your home.