As volatile as the financial world can be, mortgage rates have stayed fairly low in recent memory. What that means is that it’s a fantastic time to think about refinancing your property, whether you own a large multi-family home or a single condo. In the long term, this could result in saving thousands of dollars.
The thing about these rates is that they can’t stay low forever. Some financial experts expect that rates are going to start crawling up as soon as the nation fully returns to normalcy. In that case, acting earlier rather than later will equate to big bucks.
Where the Market Currently Stands
It’s likely that you’ve already been paying attention to the real estate market, especially if you already own property. Median home sales prices are currently estimated to be around $374,000, which is $50,000 higher than it was in 2020. A result of that is the average U.S. home swallows up 29.5% of median income just to pay mortgage payments.
The numbers for home ownership and property have been climbing higher and higher, which is completely opposite of what mortgage interest rates have been doing. This is big news for people who own their house and don’t want to move. If you refinance your mortgage right now, it could equate to thousands of dollars in your pocket.
Mortgage Rates in the Last Three Years
You don’t even have to go back that far to see how much a refinancing can save you. Running some numbers comparing interest rates between 2018 and 2021 has some pretty eye-popping results.
Back in 2018, a four percent interest rate was about as good as you were going to get for a 15-year fixed mortgage. That has plummeted to around 2.28 in the present, which is 1.72 lower. While that might not seem like a lot, you have to consider how much money a mortgage is.
Looking at some quick numbers:
- Mortgage: $300,000 over 15 Years
- 4% Interest Rate: Monthly payments of $2,219.06 for that time period
- 2.28% Interest Rate: Monthly payments of $1,969.45 for that time period
That’s almost $250 a month, 12 months a year over the course of fifteen years. If you multiply your savings by 12 and then 15, that’s a total difference of $44,929.80.
Refinancing Options
There are several ways to refinance your mortgage. As with anything money related, the best weapon to arm yourself with is knowledge. Here is a list of some of the options you may come across.
15-Year Mortgage
We’ve already covered the 15-year mortgage in the example above, and it’s one of the most popular options out there. It might have much higher payments than a more standard 30-year mortgage, but the savings are pretty huge. Because you pay off the principal much faster, the interest doesn’t eat into what you nearly as much.
This makes the 15-year mortgage extremely ideal if you can fit it into your budget. You could even retire earlier than expected, since you won’t have mortgage payments hanging over your head after the fifteen years are over.
Cash-Out Refinance Loans
This is a refinancing option for people who need a chunk of money quickly. A cash-out refinance loan increases your mortgage payments, and then gives you the difference in cash. This might not seem like a good idea, but you could do a number of things with it.
If you have some other debt that has a much higher interest rate, you’ll save money by paying it off with a cash-out refinance loan. You could also help finance some more property. On top of that, there are tax deductions you can make on some loan payments.
It’s important to keep in mind that a cash-out refinance loan isn’t for everybody. However, doing so could be a very good answer to certain problems.
Veterans Affairs Home Loans
Obviously, VA home Loans only apply to eligible families. There are different requirements depending on when they served, or if they are on active duty. If you are on active duty presently, you have to serve 90 continuous days before qualifying for a VA home loan. For those that served between 1990 and the present, the requirements are a lot different. You either need to have served one of the following:
- 24 continuous months
- The full period of when you were called to active duty (90 days minimum)
- At least 90 days if you were discharged for hardship, reduction in force, or for convenience of the government
- Less than 90 days if you were discharged for a service-connected disability
Members of the National Guard can qualify as well. If you served between 1990 and the present, you qualify if you have 90 days of active-duty service. Otherwise, you can also qualify if you were:
- Discharged honorably
- Placed on the retired list
- Transferred to the Standby Reserve
- Continue to serve in the Selected Reserve
You can view a full list of all the requirements on the Veteran Affairs website at va.gov.
For refinancing, there are three types of VA Loans that are relevant.
- Cash-out refinance loans are one of them, which was already covered above.
- The second is a Native American Direct Loan, or an NADL. This applies to Native Americans or those married to a Native American who want to buy, build, or improve a home on federal trust land.
- Finally, there are interest rate reduction refinance loans, or IRRRLs. These lower your rates and monthly payments on VA-backed loans with lower interest rates, or move from a variable or adjustable interest rate loan to a fixed one.
Federal Housing Administration Loans
Also known as FHA loans, these are pretty popular because they are designed for borrowers who have a low to moderate income. They have lower minimum payments and require lower credit scores, so are popular for first-time homebuyers.
If you have an FHA loan, it might be a good idea to refinance to a conventional loan. Most of the advantages of an FHA loan are that they are easier to qualify for, while conventional loans normally cost less a month. You can also refinance to a new FHA loan with lower rates.
Conclusion
The takeaway to this article shouldn’t be that you need to refinance right now, because it isn’t for everyone. However, you should definitely at least look into it, because it could save your family thousands of dollars. Check with a financial professional if this is an option you should take, but don’t wait too long. Mortgage rates might be on the rise, so start looking into refinancing as soon as you can.
