Is 2021 the time to refinance your mortgage?

Source: Photo by Karolina Grabowska from Pexels

After a year of record-low,  mortgage rates are slowly beginning to rise. Homeowners are showing signs of concern and rushing to refinance before rates increase again.

First, take a breath!

Before you rush out and spend money applying to refinance your property take a few moments to make sure it’s cost-effective. Ask yourself if there’s a cost-effective difference between your current mortgage rate versus potential refinance rates. Last week’s average interest rate according to Freddie Mac was 3.09%. In order to refinance borrowers need to cover costs associated with funding a loan- often called “closing costs”.

The easiest way to figure cost-effectiveness is to calculate how long it would take to recover or recoup costs versus how long you will keep the property.  If you can recoup the costs in 28 months and you plan on moving in 2 years- refinancing probably doesn’t make sense.

Typically, total closing costs range from 2 – 5% of the property’s mortgage amount.  Prices can vary by where you live.  Remember lenders are required by law to disclose, in writing, an estimate of what closing costs might be when you apply for the loan.

Don’t waste your money.

Some borrowers are cashing in on lower interest rates and equity from rising real estate prices to fund home additions, upgrading living space, and yes- even pools. 

COVID living styles made functional home space important.  However, use your equity wisely. Home prices (and appraisals) are riding high right now but an over-improved home may not keep its inflated value.

Other options.

Refinancing to obtain a long-term lower payment makes sense if the cost of refinancing works in your favor.   If you’re looking to reduce interest consider making extra payments toward the interest when you have extra money.  Most lenders allow borrowers but you need to check with them on the correct way to submit.  

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Rates are low and it may be time for borrowers to calculate the costs and benefits of refinancing.  If you’re not sure talk to your lender.  Need a market report for your property- contact me.