Are you thinking of refinancing your mortgage to save but not sure it is the right time?
Have you heard that it is the best time to "Lock in at a lower rate!" due to historically low rates but not sure if it is the right option for you?
The answer is it depends...
Not going to lie, we work with hundreds of different mortgage brokers, banks, and agents around the country, and thousands of homeowners are saving huge by refinancing their home right now!!!
That's all thanks to the Federal Fund Rate looking to stimulate the economy by dropping interest rates by nearly 2 points (2%) since the beginning of March 2020 that puts the current interest rate at 0 - 0.25!.
But just because the interest rate is at a historical low does that mean it is a good time for you to refinance your mortgage?
First, I want to be fully transparent and say that I'm not a mortgage loan officer or broker and you should always speak to a licensed agent. But having a network of a mortgage professional at your fingertips does have it's advantages.
The reality is, in most cases getting a lower interest rate on your mortgage will usually mean more savings but it usually is not the most optimal option when it comes to refinancing your mortgage.
Whether you should refinance or not has a lot to do with your current situation.
Should Refinance My Mortgage Due to Lower Interest Rate?
That's a great question and it is a tricky one to answer but as my friend, a mortgage broker who has been in the industry for 2 years told me.
"Having a great strategy always trump low rate!"
I know that sounds counter instinctual! But, this is the biggest mistake most homeowners make when it comes to refinancing mortgages!
Most homeowners just go after a lower interest rate and stop there.
Of course, having a lower interest rate will reduce your overall mortgage payments. But, you should also consider closing cost, break-even point, and whether the lower interest rate justifies a refinance of your mortgage.
Important Notice: Due to the Pandemic and Fed lowering the interest rate and keeping it near 0! There is a massive increase in demand for refinancing right now. Many of our mortgage partners have been telling us they're artificially inflating the interest rate to 3% to get rid of hundreds of applications they are getting right now!
Yes, you heard right mortgage lenders overwhelmed with requests!
So, if you're serious about refinancing! I urge you to talk to a trustworthy lender asap and submit an application. You can use our quiz to find that re still accepting refinance applications!
Here is a great case study that perfectly demonstrates why a good strategy always trumps a low-interest rate.
[Case Study]Why Low-Interest Rate is Not Always the Best Strategy for Refinancing your Mortgage
If you look at the summary table below you'll see that there are 3 different options to refinance this particular mortgage, and each had a different outcome.
Option #1: 30 Year Fixed with Lower Interest Rate & Lower Monthly Payments
The first option is reducing 0.4% points on the interest rate, which will already be a drastic saving of $460.72 with everything else staying the same, but this is not the best option.
Option #2: 30 Year Fixed with Lower Interest Rate & Same Monthly Payments
Option number two is the same as option 1. But instead of taking out that savings and going shopping, we reinvest the $460.72 back in the principal.
Doing this will allow the client to reduce almost 8 whole years and give you an additional $16,408.93 in savings because you no longer have to pay for those additional interest rates.
Option #3: 30 Year Fixed, Higher Interest Rate & Debt Consolidation
Option #3 is where it gets a bit more complicated and goes behind just mortgage. This particular client had other loans such as a car of 20k balance with a $650 monthly payment.
So what if, instead of having an interest rate at 3.49%, we get a slightly higher interest rate of $3.75% and pull out 13,000 in cash.
I know it sounds crazy right? But wait...
The $13,000 in cash out and by choosing to close on the first day of the month, will allow the client to skip the first two payments of about $6,000, plus they got an escrow refund of $3,500, giving them total cash on hand of $22,500.
This cash on hand allowed the client to pay off their car payments and some credit card balance and free up the $650 car payment they were making any way to put into their mortgage payment.
As a result, the client saved over 13 years on their mortgage payment and a massive saving of $197,989 on the total amount of interest they had to pay on their 30 years fixed rate.
I know this is a lot to take in, feel free to study it. The bottom line is this, people often think that getting a mortgage loan is an interest rate game but it is not!
It is a financing game, and a great loan officer/lender understands this and should be willing to come up with creative ways to refinance your mortgage depending on your situation for the optimal amount of savings.
Still Not Sure if you Should Refinance?
As a general rule of thumb, it is always good to refinance your mortgage if:
If any of the above sounds like you then you should definitely consider speaking to a mortgage lender to find out how much you can benefit from refinancing your property. Take our short 60-second refinance quiz to find out if refinancing is right for you.