Now maybe a good time to refinance your home loan, but just because rates are low doesn’t mean you should refinance.

Sebastian Rivera, Senior Loan Officer with MVB Mortgage, shares 4 smart questions to ask yourself before calling him or any lender to refinance your home loan:

1. How long are you planning to stay in your home? 

The longer you stay in your home, the more refinancing will make sense. Let’s repeat that once more: The longer you stay in your home, the more refinancing makes sense. 

There are always costs associated with taking out a new loan on your home. If you don’t have the money to pay for the new loan, you can opt to roll the closing costs into the loan. This means your new loan will be higher than what you currently have, but the payment will be lower. 

If you pay all the closing costs at settlement in cash, you’ll receive the full benefit of refinancing for a lower interest rate and see the most savings.

However, it’s not an all or nothing on the closing costs. You can choose to bring some money to settlement and roll some into the new loan. Talking to a lender (such as Sebastian Rivera) you can learn what your savings would be, how long it would take to recoup your closing costs and what the best option is for handling the fees.

In some cases, you can also get a “no closing cost loan.” That is not a typo, there are such things as no closing cost loans. This simply means that the lender will give you a slightly higher than market rate, and cover all your costs. This is a great strategy when you plan to sell your home within the next 3 years and still want to take advantage of the low rates. An easy example is: Let’s say you have a 4.0% rate and today’s rates are 3.000%. You can easily ask for a no-closing-costs loan and get a 3.375% or 3.50% rate with all your costs covered. This ensures you have no costs while still benefiting from low rates. 

2. Is your interest rate at 3.875% or above? 

Since rates are at an all-time low, below 3.875%, many people could see savings with a refinance. A good rule of thumb is: the interest rate should be at least 0.50% lower than your current rate to consider a refinance. Anything less than 0.50% will take a longer time to recuperate through monthly savings. It’s worth speaking to a loan officer to see if this is the right move for you. In some cases, it makes sense, such as when you can get a no closing cost refinance or when you can remove mortgage insurance. 

3. Do you have an Adjustable Rate Mortgage?

Did you get an ARM rate when rates were higher to get a lower rate? By refinancing into a fixed-rate loan you can protect yourself from any increase in the rate.  It also might be worth considering a 15 or 20-year rate as your payments might not be that much higher than your current ARM rate, and you’ll be paying off your mortgage faster.

4. Do you have a Conventional or FHA loan with Mortgage Insurance (MI)?  

The extra money you’re paying for the mortgage insurance every month could be saved with a refinance. The rule of thumb is you need 20% equity in your home. The bonus is you don’t have to achieve this just by paying down the balance on your loan. The other way to reach 20% equity in your home is by the value of your home appreciating in value. 

With prices rising the last few years, it’s worth talking to a lender to see if there’s enough appreciation combined with the principal you’ve paid on the loan to see if you would qualify.

If you think refinancing your current mortgage is a good idea, feel free to contact Sebastian Rivera with MVB Mortgage for current rates or more information.  If you’d like additional resources or have other real estate related questions please contact me.