While the majority of people across the United States are isolating in their homes to protect themselves and their loved ones from the coronavirus pandemic, some of them don’t procrastinate, they are using this time to refinance that very home. With these mortgage rates near rock bottom these days, it’s maybe a perfect time to refinance a mortgage? Certainly, in many cases, no doubt. To know if it’s the right time for your situation, there are a few things you need to consider and also some of the myths that need to be divided from reality. All these things, along with current refinance interest rates, are supposed to play a huge role in your decision about if and when to refinance. To help divide the current cash-out refinance myths from reality, check out some of the myth-busting topics that we listed below.
“I just purchased last year, so I’m not able to refinance.”
In case you are only refinancing the existing mortgage balance, and you’re not pulling cash out of your available home equity, then there’s typically no waiting period. It mostly depends on whether you or not able to lower the interest rate by enough to warrant paying closing costs all over again so soon.
“I won’t save that much money by refinancing.”
Depending on how much the closing costs associated with the new loan are, and your current mortgage rate, even a small reduction in your rate is what could yield significant savings over the life of the loan. Although, competitive rates alone might not be enough for you to justify refinancing if you’re not planning to stay in your house long term. Because the longer you stay, the higher the chances are that you’re to reap the benefits of lower monthly payments that the refinancing provides.
“I don’t have enough money for the closing costs.”
Most of the loans require some upfront or out of pocket fees like credit report or appraisal, but in most cases, you will actually roll the rest of the closing costs into the new loan amount. It’s important to remember, though, that you will be paying interest on costs as well as the underlying mortgage debt if you finance closing costs. I suggest you crunch the numbers and consult with a mortgage professional to determine what makes sense for you.
Refinancing can be a very smart financial move if it shortens the term of your loan, reduces your mortgage payment, or it helps you to build your equity more quickly. When used carefully, refinancing can also be a tool worth bringing your debt under control. Before you decide to refinance, be sure to take a thoughtful look at your overall financial situation and ask yourself: How much money will I save by refinancing? How long do I plan to continue living in the house?
What you should also keep in mind is that refinancing costs 2% to 5% of the loan’s principal. It may take a few years to recoup that cost with the savings generated by a shorter term or a lower interest rate. So, in case you’re not planning to stay in your home for more than a couple of years, then the cost of refinancing might possibly negate any of your potential savings. Also, it pays to remember that a savvy homeowner is always looking for ways to build equity, save money, reduce debt, and eliminate their mortgage payment. Taking cash out of your equity when refinancing won’t achieving help to achieve any of these goals.
Due to the COVID-19 pandemic outbreak, refinancing can be a bit of a challenge for many people. Lenders are currently dealing with high loan demand and staffing issues, but in case you are not able to pay your current home loan now, then you should definitely refer to the mortgage assistance resources.