Refi – Refininacing
Well been a crazy couple of weeks here in the equity markets to say the least, but hey isn’t that what we signed up for! Despite the current mayhem I like to find good planning opportunities in any situation. Buried in the news of market swings, presidential elections, and Coronavirus lies a great opportunity for some.
You see the Fed in this mess is signaling it is willing to lower interest rates even more than the historically low rates they are at. This has sent a ripple effect through the bond markets, specifically the 10-year treasury notes. Rates have hit the lowest they ever have touching 1.03%.
So what? Why should you care? Here is why.
You see mortgage rates are loosely tied to these figures. Since these rates are so low we are seeing record-low mortgage rates right now. I’m seeing somewhere around the following:
- 30yr conventional 3.25 give or take .125% and Jumbo (greater than $510,400) at slightly higher 3.375% give or take .125%. As for 15-year rates you are looking at in the neighborhood of 2.875% for conventional and 3.125% for jumbo rates.
- These rates are insanely low and some even suggest they may drop a little more. Some of those reading this got their first mortgage in the 70’s and 80’s when rates were double digits! Today it is as close to free money as you can get.
What should I do?
The million-dollar question (or however big your mortgage is question) is should you take advantage of refinancing now or not? Here are a couple of circumstances in which it may behoove you to refinance.
Should I refinance?
You should consider it if:
-Your current mortgage is 1% higher than the rates I mentioned. This is the loose rule of thumb our mortgage professionals suggest. If rates drop by a percent or more it is worth taking a look. Remember there are fees when you refinance which is why it isn’t always economical to do so. I’d say the newer your mortgage the more seriously you should consider refinancing if this situation pertains to you.
-You have some nagging debt. Sometimes we are forced to take on bad debt, like credit card debt. This debt can be crippling to your financial picture. No better time than now to use the equity in your home to do a cash-out refinance and pay off that debt once and for good. You get the double benefit of being rid of that pesky 10% plus debt and utilizing historically low lending rates to do so. It is a win-win! P.S. may make sense to also refinance to a fixed loan if you have an outstanding HELOC (home equity line of credit) that is adjustable.
-Addition to your home. Have you been wanting to redo that kitchen or patio for some time but don’t have the 10’s thousands of dollars to do it on hand? Well again if you have enough equity in your home wait no more! You can utilize your current cash-out refinance to pay for home improvements. You may even find your monthly payments stay the same by doing so.
-Lower monthly payments for cash flow. Are you finding it hard to afford your current lifestyle these days? Have you been in your home for a while? If so you may find that you can refinance a lower mortgage balance into a lower interest rate and thus have more breathing room each month. Granted this will extend your payments, but in many circumstances that is a welcome price to pay for more flexibility today. Also doesn’t mean you can’t pay more during later years when expenses come down a bit.
– You want to make your 30yr a 15yr. This is what I am considering for myself. If rates drop a little more I may be in a situation paying a 15yr mortgage would be the same payments as what I am paying today for a 30yr mortgage (or pretty darn close). In that situation, I get to be done much quicker and save myself a ton of interest, all while not changing my monthly expenses much.
To refi or not
Like most strategies or suggestions I make in this blog there are going to be pro’s and con’s. I’d recommend talking to your financial planner and discussing what, if anything, makes the most sense for your personal situation. I’d also like to take this opportunity to remind everyone we work with a number of top mortgage professionals we’d happily put you in touch with to help see if now is the right time for you to act!