Is It the Right Time to Refinance?
Falling interest rates and rising home prices are creating “a perfect storm” for refinancing your mortgage this year, said Joe Light in WSJ.com. The average 30-year fixed-rate mortgage fell to 3.73 percent this month, its lowest point since May 2013. The Federal Housing Administration also plans to drop the annual mortgage insurance premium it charges many borrowers from 1.35 percent of a mortgage’s value to just 0.85 percent. “On a $200,000 loan, that would save a borrower about $1,000 in the first year.” Homeowners who already have FHA-backed loans will need to refinance if they want to take advantage of the new premium, leading housing experts to predict a huge boom in refinancings in the coming months. Data from the beginning of January suggest the surge has already begun, said Patrick Gillespie in CNNMoney.com. “Mortgage applications rose nearly 50 percent” in the week ending Jan. 9, “the strongest weekly gain since November 2008,” with refinancings making up two-thirds of the applications.
You’ll want to keep in mind four main questions to decide whether refinancing is right for you, said Ilyce R. Glink and Samuel J. Tamkin in WashingtonPost.com. Can you lower your interest rate? Reduce your monthly payment? Shorten the term of your loan? And finally, can you keep your closing costs in line? “If you can answer affirmatively to each of those four questions, you’ve got a home-run refinance.” But take the time to do the math, particularly regarding closing costs, your home’s likely value, and how much time you have left on your existing mortgage. In some cases, “people with low-balance mortgages and an above-market interest rate are better off keeping their loans than incurring the cost of getting a new loan, even if they do get a lower interest rate.”
Shopping around is critical, said Ben Steverman in Businessweek.com. A new survey from the Consumer Financial Protection Bureau found that 47 percent of borrowers who bought a home in 2013 considered just one lender or mortgage broker. That’s unfortunate, because what those home buyers “saved in hassle,” they’ll likely “pay in interest” over the long term. Of course, some people will “always choose to trade money in the distant future to avoid aggravation now.” One in five homeowners who would benefit from refinancing hasn’t done so, at a median cost of $11,500 over the course of the mortgage. Sure, “there’s an effort to refinancing,” said Tim Worstall in Forbes.com. But if you are on the fence, just ask yourself this: “What else could I be doing with that effort, and would it bring me greater rewards than that $11,000 over the next 20 years?”
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