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Do you remember when mortgages used to cost as much as it costs you to use your credit card? That’s right! Though looking at today’s rates you would find it hard to believe, there was actually a time when mortgages were being doled out at an astronomical seventeen to eighteen percent. While the real estate industry is going through a somewhat rough time nowadays it still does not negate the fact that for people on one side of the fence it couldn’t be a better time.
If you are a buyer or an existing homeowner, this is the BEST time to consider a new mortgage! With mortgage rates as much as five times less than what they were during the era of big hair, tight jeans and bomber jackets – you can’t afford to pass up this opportunity. Here are some very compelling reasons and scenarios where getting a refinance right about now makes perfect sense.
GET OUT OF BEING STUCK WITH AN ADJUSTABLE RATE
Homeowners that have mortgages with an adjustable rate that goes up and down throughout the years end up facing considerable risk of drastic fluctuation. By refinancing now, a low 30-year fixed rate can be locked in, eliminating that risk while providing consistency and predictability.
BRING YOUR INTEREST RATE BELOW THE 5% MARK
Homeowners with mortgages currently at 5% or greater are excellent candidates for a refinance application. By reducing the interest rate by even one percent on their loan, the savings can add up significantly and can result in drastic reduction in monthly payment amounts.
INCREASE ACCESS TO LIQUID ASSETS
In light of the current economy, many consumers need an extra feeling of security that comes from having access to liquid assets. By refinancing your home, you can go from a 5, 10 or 15-year term to a 30-year fixed loan. This will reduce the payment each month allowing you some extra financial breathing space to help pay bills and create a security fund.
DRASTICALLY REDUCE THE LIFE AND LONG-TERM COST OF YOUR LOAN
For those holding a 30-year fixed rate mortgage that is at 5% or more, this is a great time to refinance into a lower 10 or 15-year loan term. The benefit is that payments would remain almost the same if not lower than the current amount paid out each month.
REMOVE PREPAYMENT PENALTIES FROM YOUR MORTGAGE
Many loans from the past have a prepayment penalty on them, making it impossible for the borrower to reduce the term and interest charges by making extra payments without suffering fees that go along with it. There are many online calculators available to map out a new amortization schedule based on making extra payments that will help guide you as to how much you can save in the long run.
Things to Consider Before Applying for a Refinance
Are you familiar with your credit outlook? What does your credit report say about your financial situation? Before you apply for a refinance it is important to know where you stand in terms of your credit profile and if it is not optimum or at least at a minimum required level to be approved for a refinance, take steps to make improvements.
Where at one time very low credit scores were entertained in the mortgage industry, in today’s market, lenders are seeking out borrowers with higher scores. At one time a 650 score used to be a really good one but today you might need 680 or greater in order to refinance. If your score needs improvement it is critical that you make changes prior to the application process to increase your chances of approval.
Steady employment is a key consideration for lenders. If you cannot satisfactorily demonstrate at least two years of consistent steady and stable employment with the same employer – there is a good chance you will not be approved. New graduates who are working full time are also usually qualified for a home mortgage.
One important aspect of a refinance is to know the value of your home. Loan to value is something that lenders will want to address when considering your application for a refinance. A 50% loan to value means that the 50% of its value is owed, so for example on a $200,000 house that $100,000 is owed – the loan to value would be 50%. Though online tools only provide a basic idea of home values they are a place to start. The way to get a far more accurate estimate of home value is through your Realtor who will conduct a detailed analysis of the area and run some comparables of like-kind homes. You can also obtain an appraisal by a licensed appraiser – something that is part of refinance process anyway.
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At the very least, homeowners should definitely meet with their loan officer to determine whether any of these options make sense for them and whether they should avail the fantastic opportunities that are out there right now.
