By Stephen Fournier – KeyBank Central New York Market President
This month marks another record-low for average 30-year fixed-rate mortgages as measured by Freddie Mac, down to an astounding rate of 2.86%. While the economy feels the strain of the impact from COVID-19, there does exist this one bright spot opportunity for many homeowners to make their monthly budgets look better. For potential new homeowners, it’s an opportunity that we don’t know how long will exist. Like so much of the home buying market, that puts the pressure on to move quickly, and being prepared to do so.
Refinance to Save
For many homeowners, locking in an interest rate at these historic lows can have big implications on how much they’re paying on their home in the long run. The top question on any homeowners’ mind is “does this make sense?” The simple answer is to do the math, because it won’t for everyone.
Loan origination fees and closing costs will play a role in determining if the change benefits you. Some lenders may allow no closing costs or low closing cost options. Other factors that you need to consider include the equity in the home, the type of refinance, property type, and credit score. If you question what that math looks like, don’t hesitate to reach out to a loan officer to figure it out. Not only will they calculate your refinancing options, but your financial institution is there to advise you and to provide the perspective you’re looking for.
Once the costs are determined, consider the benefits. For many homeowners, this offers the opportunity to jump into a fixed-rate mortgage from an adjustable-rate mortgage. Just the stress of not worrying about uncertainty in mortgage interest rates in the future can be a burden off your mind.
While jumping into a new, low fixed-rate mortgage can reduce the monthly payments, there are other benefits homeowners can look for. Want to keep paying the same amount or possibly even more but for a shorter amount of time? You can look at reducing the repayment term of the mortgage. Reducing your long-term costs of paying for your home is a step that could have massive implications in reaching your financial goals later in life. Other opportunities include consolidating your debt into a new mortgage or taking cash out of the home for any current or future expenditures. Using the current environment of mortgage rates can translate into steps to help you on your overall financial wellness if you just know how to structure and the right conversations to have with your financial advisor.
Don’t Count Yourself Out
For new homeowners, the thought of refinancing their mortgage may not even cross their mind. If they’ve bought within the last few years, they’re likely paying a mortgage with an interest rate in the 3% to 5% range. Historically, those are great rates, but even the historically small shift we’ve seen downward could be enough to tip the scales.
If a buyer previously put less than 20% down and is paying a high interest rate, along with monthly mortgage insurance, now can be a great time to refinance. Many homeowners, especially those who are young and starting out in home ownership, may not have had the means to put 20% down, but perhaps have built the savings to do so now. This is when you can use your savings for the long-term benefit of a historically low rate, along with getting rid of the monthly mortgage insurance cost. That alone can make it worth it for many people doing the math.
Don’t Make It A Gamble
There’s no denying we are facing economic uncertainty in the midst of a recession and the pandemic. Include the factors of how tight the housing market currently is, and it’s nearly impossible to say how long these current historic rates will last. While the best advice towards refinancing is to do the math, the next best piece of advice is don’t take chances. If it’s beneficial to you now, don’t wait in hopes that it becomes more so with more drops in the rate environment.
Talk to your loan officer or financial institution to find the best advice for your situation and outlook. Do the math. Act on the right move for you, and your journey towards financial wellness will look better than it ever has.
About the author: Stephen Fournier is President of KeyBank’s Central New York Market. He may be reached at either 315-470-5096 or [email protected].
Prequalification Checklist for a Home Loan
It’s important to note that pre-qualification can be a good first step in the home buying process, though it’s not required. If you’re looking to get a mortgage, you’ll want to get pre-qualified by a reputable lender first. This is an easy process, but it’s important to remember it’s not the same as being pre-approved for a mortgage — though some lenders may use these terms interchangeably. The process of pre-qualification takes a look at your numbers and can give you an idea of how much you may be approved for, though nothing is set in stone.
In order to get prequalified for a home loan, here’s what you will need:
Income: A lender wants to know how much you can reasonably afford for a mortgage given your current income.
Assets: On top of your income, a lender may want to know how your overall financial health is and know that you can handle a responsibility like a mortgage.
Debts: A lender wants to know how much debt you have — and look at your overall debt-to-income ratio in order to assess what you may be able to afford.
Credit: A peek into your credit history can offer a lender an idea of how responsible and creditworthy you are.
The good news is that with this information, you may be able to be pre-qualified by a lender and that this process may take place in person or by phone.
Having a prequalification letter can show that you’re really serious about homebuying – and can open doors in the homebuying process and make the mortgage process much easier. It can save you time and a lot of hassle so that you know what you can actually afford.
