Thinking Of Refinancing? The Window Is Closing. Here Is What You Need To Consider.
The Fed has already announced that they will start tapering the buying of treasury bonds and mortgage back securities in November. Additionally, the Fed announced they plan for one rate hike in the 2nd half of 2022, two rate hikes in 2023, and three rate hikes in 2024.
In plain English, this means that interest rates are going to start ticking back up. The Fed’s plan leaves a tiny window where borrowers can take advantage of these near all-time low-interest rates, along with the amount of equity they currently have in their home.
Should I Take Advantage Of Low-Interest Rates Before They Are Predicted To Increase?
The answer depends on your goals. Start by asking yourself these two questions.
“How long do I plan on staying in this home?”
How long you are planning on staying in the home determines your break-even point in the refinance. If the answer is under 6 months, suffice to say that makes no sense. Typically, you will never recover the cost of the refinance in what you are saving monthly. If you are thinking 1 to 2 years, the answer is it probably doesn't make sense. In general, you will not recover your costs with a few exceptions. 1) your current interest rate is much higher than the current market rate or 2) you are making a large PMI payment monthly. Planning on staying in the home for 3 years or longer? That is typically where refinancing starts to really work in your favor.
The second question you need to ask is,
“What is the goal of refinancing my home”?
Let’s look at a few of the advantages aka the why you might want to refinance your home:
I want to lower my monthly payment.
As interest rates rise, the goal of lowering your monthly payment will become more difficult. Interest rates have a direct correlation to your payments. Higher interest rates mean higher interest payments. If you want to lower your monthly payment towards your principal and interest on your mortgage, please reach out to start an application today. This way, we can begin to shop and lock in your rate immediately to find the best deal possible with our current rate environment.
I want to lower my interest rate.
If lowering your interest rate is your goal, you really need to start an application as soon as possible. Starting an application doesn’t mean you have to commit to refinancing your house. There is no fee to start the loan application. The application simply helps paint the picture of you and your unique financial situation, in order for us to inform you of your options.
I want to get rid of my PMI payment.
If getting rid of PMI is your goal, you are in luck! The increase in housing prices has helped many homeowners reach the 20% equity mark in record time. Unfortunately, FHA mortgages have PMI for a very long time. If you put down 10% or more at the initial time of purchase, you will have PMI for 11 years on an FHA mortgage. If you put less than 10% down on the initial purchase of an FHA mortgage, you will have PMI for life! The only way to get rid of this PMI sooner is to refinance to a Conventional loan.
I want to pull some equity (cash) out of my home.
If you need some extra cash to pay down debt, start a home project, purchase a car, kids college fund, or for any other reason, you want to pull that cash now. If you wait, your rate could be significantly higher as money becomes more expensive and the cost to borrow increases. Another major factor is that since we are having such a strong sellers market, sales prices are close or at all time highs! You may not have enough equity to tap into if you drag your feet on refinancing. There is no guarantee interest rates will increase; no one has a crystal ball. However, most analysts are predicting higher borrowing costs. This, coupled with the information that the Fed is giving us, makes it very logical that rates have much more room to go up than they do to go down.
I want to build equity faster.
Building equity faster can be accomplished in a few different ways. Making one extra fully amortized payment (principal, interest, taxes, insurance, etc.) towards your principal on a 30 year mortgage will help you pay off your loan 7 years faster! That is an excellent way to build equity without refinancing. However, you can also refinance your home from a 30 year mortgage to a 15 year mortgage. This type of loan typically has a lower interest rate than a 30 year loan, is not double what a 30 year payment would be, and helps to pay off the mortgage in half the time!
If you plan to stay in your home and have a financial goal, it is time to start the application process. Starting an application is simply the first step in learning more about your options.
Click here to get started.
If you know someone looking to purchase or refinance their home, or have any questions regarding the home buying or refinancing process, please contact us at 727-376-6900 or go to www.chissellmg.com for more information.
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