For many homeowners, low-interest rates mean one thing: it’s time to think about refinancing your mortgage.
Rates can go up or down depending on the macro-economic environment. It’s important to make sure you’re putting yourself in the best position for financial success with every decision you make. Make sure to do you research on rates and what the future may hold for rates before making your decision.
In This Article
Refinancing Your Mortgage
A refinance is when your current mortgage is paid off with a new mortgage, at a new term (30-year, 15-year, etc.) and interest rate. Low refinance rates are typically a time to consider refinancing your mortgage because you may be able to reduce your monthly payment and/or the length of the mortgage, as well as the total amount of interest you’ll pay over the life of the loan.
The New Refinance Fee
The Federal Housing Finance Agency (FHFA) looked to have made refinancing your mortgage more costly this summer when it levied a new 0.5% ‘Adverse Market Refinance’ Fee on new refinancing through Fannie Mae and Freddie Mac from September 1, 2020. But as quickly as this surprise fee arrived, the line was redrawn and the deadline for fee-free refinancing loans extended. This means that this fall still may be ideal for taking advantage of historically low refinance rates.
Why Now May Be the Time to Take Advantage of Low Refinance Rates
That 0.5% loan refinance fee was set to go into effect on September 1st, but the FHFA announced a delay. Now, if you’re looking to refinance your mortgage, you have until December 1, 2020, to close to avoid paying a fee that will cost you $1,500 on a $300,000 refinanced loan. Additionally, the FHFA announced that only refinanced loans over $125,000 will carry this extra half-percent fee.
Despite the later start date, mortgage analysts are advising that if you plan on refinancing your mortgage, you may want to move quickly to avoid the fee. This is because lenders are expected to pass along their cost to homeowners in the form of higher mortgage rates, which is exactly what occurred late this summer when the surprise fee was initially announced. Lenders could begin increasing interest rates as early as October.
How Much Could Low Refinance Rates Save You?
Using that same $300,000 refinance loan figure, let’s take a look at how much you might save each month should you take advantage of current low refinance rates.
If you refinance a $300,000 mortgage at a 3% interest rate and your current rate is:
- 5%, you may save as much as $350
- 4.5%, you could see your monthly mortgage payment reduced by $255
- 4%, your savings might be $160 each month
Of course, the exact low refinance rates available to you will be calculated using several factors, including your credit score.
The Costs of Refinancing Your Mortgage
Low refinance rates are sweet, but the costs of refinancing your mortgage may be a bitter pill to swallow. Closing costs, which may include title insurance, credit checks, and appraisal fees, among other costs, may range anywhere from 2–5% of the total refinanced loan amount ($6,000 to $15,000, based on a $300,000 loan). Before you consider refinancing your mortgage, sharpen your pencil and get a calculator ready to make sure the costs of closing on your mortgage don’t devour the potential savings from low refinance rates.
Cost vs. Saving
There may be sticker shock spending even $6,000 in closing costs while refinancing your mortgage but consider the potentially lower monthly mortgage payment x the number of years/payments. For example, if the low refinance rates reduce your mortgage payment by $255 a month, you will have saved over $6,000 in the first two years of the refinanced mortgage alone. Over the full lifespan of a 30-year mortgage, your total savings could exceed $91,000. Those $6,000 in closing costs may suddenly seem like a solid investment.
As you ponder refinancing your mortgage to take advantage of historically low refinance rates, maybe even to get into a 15-year mortgage to pay off your home faster, be sure to consider all the costs and benefits, both short and long term, of doing so.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.
Eligibility for a HELOC up to $500,000 depends on the information provided in the HELOC application. Borrower must take an initial draw of $50,000 at closing. Subsequent draws are prohibited during the first 90 days following closing. After the first 90 days following closing, subsequent draws must be $1,000 or more (not applicable in Texas). Loans above $250,000 require an in-home appraisal. Loans above $250,000 require title insurance.
The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Spring EQ borrowers get their cash on average in 18 days. The time period calculation to get cash is based on the last 6 months of 2021 loan fundings, assumes the funds are wired, excludes weekends, and excludes the government-mandated 3-day right of rescission grace period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications.
Spring EQ cannot use a borrower’s home equity funds to pay (in part or in full) Spring EQ non-homestead debt at account opening. Minimum draw in Texas is $4,000. To access HELOC funds, borrower must request convenience checks.
Interest rates may be adjusted based on factors related to the applicant’s credit profile, income and debt ratios, the presence of existing liens against and the location of the subject property, the occupancy status of the subject property, as well as the initial draw amount taken at the time of closing. Speak to a Prosper Agent for details.
Qualified applicants may borrow up to 97.5% of their home’s value (not applicable in Texas). This does not apply to investment properties. For Texas HELOCs, qualified applicants may borrow up to 80% of their home’s value.
HELOCs through Prosper may not be available in all states. Please carefully review your HELOC credit agreement for more information.
All HELOCs are underwritten and issued by Spring EQ, LLC, an Equal Housing Lender. NMLS #1464945.
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