Rates are HISTORICALLY low! Now you’re asking yourself, is it a good time to refinance? Even if you just purchased your home within the last year, it might be feasible to refinance now and lock in at a lower interest rate.
Refinancing can help you lower your payment, shorten your mortgage duration (possibly move from a 30 to a 15 with very little increase to your monthly payment) or pull out some cash to pay for that boat you’ve always wanted. This blog will outline some details but remember all you really have to do is call one of our helpful loan officers! Find our contact info at www.future.loans.
What is refinancing, and why would one do it?
Without making it too complicated, it’s replacing one’s existing mortgage with another mortgage – changing the time frame and/or interest rate. Here are some examples: tapping into your home’s equity, taking advantage of a better rate, removing mortgage insurance and/or paying off your mortgage faster by shortening the term of the loan.
Considering refinance? Things a loan officer will ask you
When refinancing, you must consider how long you plan to be in the home. Depending on that answer you will need to evaluate if the interest rate break-even period will make sense for your family. Don’t worry, our loan officers will go through these things with you. Typically there are closing costs associated with refinancing, and if you are not going to be in the home for an extended amount of time (usually at least 2-3 years), refinancing might not be for you.
This all depends on the interest rate you choose and how high your current mortgage interest rate is currently. If your rate is on the higher end, the break-even period will be less. Your credit score is also important when refinancing shortly after your home purchase. If your score is still recovering from the previous loan, it may be best for you to wait. Check with our helpful staff and they can easily list out the pros and cons of refinancing.
How soon after I’ve purchased my home can I refinance?
Although technically there are no prepayment penalties, you may have some restrictions that you’re unaware of on your current loan. If you’ve closed recently, your wallet may still be feeling the pains of your down payment, home improvements or purchasing items for your new home. Here are some mortgage refinance rules and time frames to consider:
- Cash-out refinances: borrowing extra funds against your home equity, typically has a six month waiting period (and you most likely do not have that much equity invested in that time frame anyway!).
- Mortgage forbearance (or had your original loan restructured to allow you to skip or temporarily reduce monthly payments): you may be required to wait up to 24 months before refinancing. This all depends on the servicer & if anything changes in the guidelines – some lenders are also requiring you be up to date on payments AND have made up to 3 consecutive payments after forbearance to be eligible.
- If you have an FHA loan and you want to refinance it with an FHA Streamline Refinance: you’ll be asked to wait 210 days from the original closing date.
- It is easier to qualify for a straightforward rate and term refinance which rarely has a waiting period.
- If your current mortgage rate is only slightly higher than today’s rate, even a small drop can benefit you as long as you plan to be in the house long term.
- Some loan products have penalties for prepayment if you refinance your loan within the first three to five years.
If you are looking to refinance, or have any questions regarding a mortgage, our Future Home Loans team is here to help! Currently, rates are as low as 2.5% on 30-year fixed loans (rates are based on credit, debt to income ratios, property type and other factors). There are some exclusions so please reach out to us today to discuss your specific situation and the best options for YOU!
*The principal and interest payment on a $200,000 30-year Fixed-Rate Loan at 2.875% and 80% loan-to-value (LTV) is $829.78. The Annual Percentage Rate (APR) is 3.097% with estimated finance charges of $5,600. The principal and interest payments do not include taxes and home insurance premiums, resulting in a higher actual monthly payment. Rates current as of 05/12/2020. The APR is calculated using the Actuarial Method.