IT’S ABOUT TIME TO THINK THROUGH A REFINANCE MORTGAGE
With the present mortgage rates dropping again, reaching in depth in the early month of the year and being down for almost 16 months, the million dollar question should ring like this – Do I need to refinance mortgage? YES! And there’s no doubt about that but for whatsoever reasons, United States homeowners are discounting the opportunity to do so.
According to the latest statistics there are more than $800 billion outstanding mortgages in the United States with note rates valuing five percent or more. If you are amongst them, you can compare your present mortgage with the mortgage rates today, you would be shocked with the figures that you will discover. If you are still in doubt, a recent Freddie Mac report was released that showed the standard normal financing household at present saves 30% on average via a refinance mortgage.
What does 30% savings means? It means that for every $1,000 you pay with your bank today, you could only be paying $700 to your bank tomorrow. Definitely a huge monthly savings for you and your family. Don’t miss out this opportunity!
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ARE YOU HOLDING LOANS FOR TOO LONG?
United Sates homeowners are holding home loans longer according to Freddie Mac. Research shows that during the second quarter of 2014, the median age of refinanced loan went up two years from the year before with 7.3 years and almost three times the median of the latest decade. Imagine how it multiplied with a short span of time, which became the highest reading since Freddie Mac started tracking all the data’s in 1985.
Homeowners of today are unlikely to take full advantage on the dipping mortgage rates than any homeowners during any period in history regardless of soaring near four percent with many lenders quoting rates in the 3s.
Even if there’s an aid from the HARP refinance program, the average refinanced age remains eminent even with today’s mortgage rates, having an average household would actually save more than 30% via a refinance mortgage.
Truly, it’s a very strange behaviour that even if we consider the mortgage rates to be extremely low, a big number of figures of home loans are still “in the money”. Even the government is puzzled about this scenario, in fact they launch a campaign recently to identify those homeowners that are eligible for refinance mortgage – with no doubt having a long list of eligible mortgages by states. Expectedly, most of the homeowners under their list are in populous states which includes California, Texas and Florida. On the other hand, there are still eligible homeowners in all the 50 states, including the District of Columbia and possibly you are one of them!
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WITH THE RATE BELOW 4%, SHOULD YOU REFINANCE MORTGAGE?
Should I refinance mortgage? That’s the million dollar question and the most common question heard with lenders quoting rates below 4 percent, yet when the mortgage rates drips to new lows, homeowners often think whether it’s worth refinancing for and most of the time ends up with a big NO.
Actually, when the mortgage rate drops, there are two faces of arguments against refinancing and both can be misleading.
The first one states that unless you lower down your mortgage rate by approximately one percent point or more, it’s okay to refinance mortgage but if not then it’s not sensible to refinance mortgage at all. The second one states that it’s not sensible to refinance mortgage if you are planning to move before your loans hit its “breakeven” point.
Now, let’s expose these “conventional wisdom” pointers.
THE MISCONCEPTION OF “SAVING 1%” ON YOUR MORTGAGE
The myth of “Saving One Percent” idea started long before the 1950s during those time closing cost were big, loan sizes were small and homeowners stayed on their homes until they die. Back then, the loan sizes were basically very small with less than $60,000 in figure. Before, a homeowner had to trim down its mortgage rate at least by one percent to save $1,000 annually. In today’s loan sizes and with the normal refinancing, a homeowner can save approximately six times that amount. Even a small mortgage rate reduction can go a long way in substantial monthly saving.
There are a lot of ways to cut cost and most of the homeowners make a quarter-percentage point reduction useful, as long as it cuts the cost down. However, because of the One Percent Fallacy, homeowners will sometimes insist on having the reduction under any cost – even if it involves the payment discount point, which can contradict the long-term value of doing your refinance mortgage ideals.
Thus, one should bear in mind that you don’t need to follow the One Percent Fallacy, instead, you just need to Save Money.
THE MOMENTOUS BREACH IN THE “RECOUP YOUR CLOSING COSTS” STRATEGY
Most of the time, homeowners jump into a refinance mortgage after over thinking that they will never “recoup their costs”. This action is commonly known as the “Break-Even Method” for valuing a refinance mortgage and it is a dangerous way to approach the situation.
The main problem in Break-Even Method is that the devised formula make three major rules:
- You will never want to refinance mortgage your home in your lifetime
- You will never need to refinance mortgage your home in your lifetime
- You will never sell your home or move out to a new home in your lifetime
In the future, you may want to refinance your home for a lot of reasons – Maybe because mortgage rate plummeted again or maybe you want to expand your assets and you’d like to cash-out for home renovations.
In addition, a 15-year mortgage rates are tremendously low and you might consider to reduce your long-term interest payments since a 15-year mortgage pays 65% less mortgage interest over time.
Now, before you conclude anything about “mortgage rates are as low as they can get”, bear in mind that according to some experts, every year from 2009-2014, mortgage rates can go lower and every year they were wrong. Note, that Wall Street is unpredictable and so is your financial situation.
One couldn’t possibly know how long you’d hold your refinanced loan, which means that you can never determine the break-even point for recouping your loan fees. It’s these reason that the Break-Even Method Fails to work, there are so much uncertainty at risk. So, how can you really tell if it’s a good idea to refinance?
GUARANTEED SAVINGS: ZERO-CLOSING COST LOANS
Is there a better way to know the perfect timing to refinance mortgage aside from the “One Percent Method” and “Break-Even Method”? Can you save money and pay nothing to do it? Definitely, YES! A method called zero-closing cost mortgage is the right approach for this situation.
What does Zero-Closing Cost Mortgage means? Just, precisely what their name implies, they are basically mortgages for which plainly has no closing costs. Meaning, if there are no closing costs, there will be no break-even points to consider nor one-point savings to monitor.
Generally, for loan size of $250,000 and up, you can avail a zero-closing cost mortgage by increasing your mortgage note rate 25 basis points or 0.25% and for loan size of $400,000, the typical increase is about 12.5 basis point or 0.125%. The great news about this is that no-closing cost mortgages are available across all loan type including FHA loans, VA loans and conforming mortgages. Also, Zero-closing cost mortgages are available in all 50 states.
Therefore, if you can lower down your mortgage rate and you don’t need to pay a dime, then, that’s the time you mortgage refinance.
COMPARE THE LATEST MORTGAGE RATES
If you have a 30-year and 15-year mortgage, rates are at a 16-month best with a possible mortgage savings of about 30% or more. This is an excellent timing to refinance mortgage – especially if you have the leisure of doing it at no cost. You can begin with getting a rate quote at today’s rates. Note that rates are available for free online with no Social Security Number required and no obligation to proceed to get started. So, what are you waiting for, get a live rate quote today!