With mortgage rates at their lowest point since the rock-bottom numbers of 2013, LOCALS may be wondering, is it a good time to refinance?
“This is not a simple question,” said Jean Dowd, mortgage loan office for PNC Mortgage.
“People refinance for different reasons. Some to get a lower monthly payment, some want to reduce their term, some want to do both. There are also people who want to take the equity out of their house by refinancing. The only real way to answer that question is to find out what the customer’s objective is and work the numbers with them.”
Beth Flanagan, vice president of residential mortgages at Bridgehampton National Bank, shares a similar view.
“Knowing what your long-term goals are for your home are key. Is this the forever home? If it’s a first home, will you sell and move up at some point? Do you want to pay off the mortgage by a certain time?”
Flanagan suggests educating yourself about all of your loan options, “considering what you are trying to accomplish and considering what your timeline in the house might be.”
How much lower does the rate need to be to make a refinance worthwhile? Both Dowd and Flanagan say the old rule of thumb was a 2-percent difference in rate.
“But this really depends on the borrower’s complete financial picture and goals,” said Flanagan, “If the goal is to shorten the term from a 30 year loan to 20 or 15, the savings in mortgage interest can be significant with only a 1-percent difference in rate. If the cost of refinancing can be recovered through the savings in monthly payment within a couple of years, that generally makes sense.”
“You have to take into consideration the balance of their current loan, the age of their current loan and again their motivation,” said Dowd. “There are also times where the client may not be saving much in the way of rate but they are reducing their PMI payment. HUD just reduced the PMI factor for FHA loans. We have quite a few people coming in to refinance an FHA loan that they took out only a year or so ago because it is saving them money.”
But refinancing does come at a price. Costs include appraisal, title search, bank fees, recording costs and mortgage tax.
“There are also some local government recording charges and the fee for the closing agent. Some lenders have additional fees that vary from lender to lender, but that would need to be a conversation with the individual lender. In most cases we are able to include the closing costs in the loan so there would be no out of pocket expense,” said Dowd.
“There are sometimes opportunities available with the bank holding your mortgage to avoid some of those fees. It’s always a good idea to ask,” said Flanagan.
There are rumblings that the Fed may raise the prime rate sometime this year. Should you hurry and refinance before they do?
“Mortgages rates are not directly tied to the prime rate. However, home equity loans and lines are,” said Dowd. “If you have a home equity line of credit with a variable rate, you will see your rate change when the prime rate changes. If the prime rate goes up , your rate will go up, if the prime rate goes down the rate on your equity line would go down.”
The decision to refinance is very individual. Do the research, speak with a mortgage specialist and get the facts before moving forward.