By Chad Taylor
Every week I share my thoughts about buying and selling homes in today’s market, yet I rarely talk about refinancing your home. If you are going to be in your home for a while, refinancing could be the way to go.
Many homeowners are either looking to save money on their monthly mortgage, or to simply shorten it from the traditional 30 year mortgage to perhaps a 15 year mortgage. The interest rate of a 15 year mortgage dropped to 3.08 percent this week. That is the lowest 15 year rate that we have seen since June 2013.
Many homeowners who currently have an adjustable rate mortgage (ARM) should consider refinancing into a 15 or 30 year mortgage while rates are so low. This would eliminate the potential of their interest rate going up as the ARM matures.
There are a few things that you should keep in mind when refinancing:
- 1. The costs of a refinance: The closing costs associated with a refinance should be taken into consideration before moving forward. A homeowner should estimate their monthly savings (due to the potential refi) and then calculate how long it will take for them to recapture the costs. This is why a refi is best suited for those who are not planning on a move in the near future.
- 2. Don’t become a low rate junky: A best practice is to refi only once. Due to the closing costs previously mentioned, if you refi over and over you could end up losing money in the long run.
- 3. Look for at least a 1 percent difference from your current rate. This one is pretty self explanatory. This is just a good rule of thumb. If rates are at least 1 percent lower than where your rate is currently, then now could be a great time for you to refinance.
If you have attempted a refi in the past, and were denied due to the softened market conditions (during the recession for example) you may want to try it again. As values have quickly rebounded, so have your chances for a favorable valuation on your home. If you would like an opinion on the value of your home before you start this process, feel free to email me. We would love to help.
A word of caution: there is a difference between a lower monthly payment and a lower interest expense. When you refinance into a lower interest rate, and you extend your current mortgage from the 15 years that is currently left on it to a new 30 year loan, you may save monthly and still pay more interest expense by the end of the 30 year term. It is important to know the difference. If you take this same scenario and stay in the home for three years (should be enough to recoup the closing costs) and then sell, you may very well come out ahead due to the lower mortgage payments and the shorter time period for the interest expense.
Again, feel free to email me with any question pertaining to a refinance and I would be happy to refer you to a trusted lender for more detailed information.
This weekly sponsored column is written by Chad Taylor of the Taylor-Made Team and Keller Williams Realty Key Partners, LLC. The Taylor-Made Team consistently performs in the top 3 percent of Realtors in the Heartland MLS. Please submit follow-up questions in the comments section or via email. You can find out more about the Taylor-Made Team on its website. And always feel free to call at 913-825-7540.