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Home Equity Loan - When Does Refinancing Make Sense?
For the last two years, interest rates have been much lower than anytime during the last thirty years. This has resulted in an unprecedented boom in real estate sales, home refinancing and home equity lending, as borrowers try to take advantage of these rates for the long term. But refinancing or even borrowing against your home's equity may not make sense for everyone. When is it a good idea to refinance your home? When is it not advisable?
Traditionally, lenders advised homeowners not to refinance unless doing so would lower the interest rate on the loan by 1-2%. While anyone who can save 2% on their interest rate would almost certainly benefit from doing so, others might find refinancing worthwhile even with a smaller reduction in the interest rate. Increased competition among lenders has brought the costs of refinancing down in recent years, so homeowners can realize a significant reduction in their home payments with reductions of ½% or so, depending on the size of their mortgage.
The key to whether or not refinancing makes sense is how long the homeowner intends to remain in his or her home. The costs of the refinancing, which can run $1000-2000, are amortized over the life of the loan. For many people, a reduction of $50 or more in the house payment would be more than enough to justify a new mortgage. If payments cannot be reduced by at least that much, or if the homeowner plans to live in the home only a short while, refinancing may not be a good option.
Refinancing may also make sense for those with Adjustable Rate Mortgages (ARMs.) At the moment, at 30-year fixed-rate mortgage is quite competitive with an ARM, and may actually be cheaper. With rates at historic lows, an ARM can only adjust upward, making it a less desirable choice in comparison with a fixed-rate loan.
Anyone considering a home remodeling project or debt consolidation might ordinarily think of a home equity loan or line of credit. These are often wise choices, as they offer deductible interest and great repayment flexibility. On the other hand, a chance to obtain a 30-year loan at 5% might make a complete refinancing with a cash-out option a better choice, as home equity rates are somewhat higher than first mortgages.
A new mortgage might also make sense for anyone with a second mortgage or a piggyback loan. A piggyback loan is a second loan used at the time of a home's purchase to help the buyer avoid paying the sometimes-expensive private mortgage insurance. Simultaneous payments on two mortgages will be higher than paying on one, so this might be a great time to roll them together on a refinance. The same applies to anyone carrying a large credit card balance; that money could be rolled into a home loan with deductible interest at a lower rate. Anyone considering such a move should be careful, however, as failure to repay that debt could lead to home foreclosure.
Now is a great time for any homeowner to consider whether or not a new mortgage could help lower their payments. With interest rates as low as they are now, the timing is great, and there's nowhere for the rates to go but up.
©Copyright 2005 by Retro Marketing.
Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a Website devoted to debt consolidation and credit counseling information and HomeEquityHelp.net, a site devoted to information on mortgages and home equity loans.
MORE RESOURCES updated Wed. August / 12 / 2020
How to get a low-cost mortgage refinance Bankrate.com
Refi Rates Today, August 10, 2020 | Rates drop Bankrate.com
Mortgage Rates Hit Yet Another Record Low The Motley Fool
Don't let mortgage rates distract you. You should also consider this when refinancing - Fox Business
How much does it cost to refinance? Bankrate.com
Mortgage Rates Today, August 11, 2020 | Rates climb Bankrate.com
Is It Already Time To Refinance Again? Mortgage News Daily
Refi Rates Today, July 24, 2020 | Rates slide Bankrate.com
Rocket’s Refinance-Fueled Blastoff Might Not Last The Wall Street Journal
You might have a tough time getting a 'jumbo mortgage' during pandemic. Here's what to expect - CNBC
How the right questions yield smart mortgage... Kent Reporter
How to Refinance a Jumbo Loan Credible News
Lenders Are Making It Harder To Get A Mortgage. Here’s How Borrowers Can Improve Their Odds - Forbes
What Is A No-Closing-Cost Mortgage? Bankrate.com
Don't make these mortgage refinancing mistakes | Business | swoknews.com The Lawton Constitution
Mortgage denial stats by race: What we can learn | Mortgage Rates, Mortgage News and Strategy - The Mortgage Reports
Mortgage denial stats by race: What we can learn | Mortgage Rates, Mortgage News and Strategy The Mortgage Reports
Bots Help Meet Mortgage Demand Credit Union Times
Mortgage industry faces 'tsunami' of refinancing deals Phoenix Business Journal
How Does Mortgage Repossession Work? The Motley Fool
How to save through refinancing KTAR.com
More Wells Fargo customers say the bank decided to pause their mortgage payments without asking - NBC News
More Wells Fargo customers say the bank decided to pause their mortgage payments without asking NBC News
Report: Fewer Homeowners Think Now Is a Good Time to Buy The Motley Fool
Mortgage refinance: Everything you need to know Fox Business
How to get a jumbo mortgage when lenders are scarce Bankrate.com
How to get the best mortgage refinance rates Fox Business
How to refinance your mortgage Fox Business
Just Approved: Run, don't walk to refinance Beaumont Enterprise
How Low Are Mortgage Rates Right Now? Just Look at the Sky-High Numbers From the '80s and '90s - MONEY
How Low Are Mortgage Rates Right Now? Just Look at the Sky-High Numbers From the '80s and '90s MONEY
Is now the best time to refinance your mortgage? Fox Business
10 things to know before refinancing your mortgage Fox Business
Six Ways COVID-19 Has Affected Home Lending whatcomtalk.com
Money Roundup: South Florida GDP plunge worse than national average; Local billionaires made billions in first months of pandemic and more - South Florida - South Florida Business Journal
Money Roundup: South Florida GDP plunge worse than national average; Local billionaires made billions in first months of pandemic and more - South Florida South Florida Business Journal
Sell Rocket Companies: It Is REKT Seeking Alpha
When should you refinance your mortgage? Fox Business
Mortgage refinance applications spike 79% as homeowners rush to take advantage of lower rates - CNBC
Refinancing boom hits Central Coast Pacific Coast Business Times
With Mortgage Rates So Low, Getting a Floating Rate Mortgage Might Seem Crazy. Here's Why I Did It Anyway - MONEY
With Mortgage Rates So Low, Getting a Floating Rate Mortgage Might Seem Crazy. Here's Why I Did It Anyway MONEY
Record number of borrowers can now save on a mortgage refinance as rates drop from coronavirus fears - CNBC
Record number of borrowers can now save on a mortgage refinance as rates drop from coronavirus fears CNBC