Is it Time to Refinance?
Questions to consider while rates remain low
We understand, the prospect of refinancing may come with a little fear: You’ve heard it’s expensive and requires reams of paperwork. However, mortgage rates continue to sit at or near record breaking lows. If you haven’t done so already, it may be time to consider, “Is now the time to refinance?”
To answer that question, you have to answer a few others.
- Do you have a mortgage with an interest rate at least a half point higher?
- Do you have equity of at least 10% to 20% in your home?
- Do you have a credit score of 720 and above – or a score that has improved substantially since you took out your mortgage?
- Do you have an adjustable rate loan?
If you answered yes to any of these questions, it’s time to at least consider talking to a lender. The ultimate barometer of whether a deal will make sense for you will be whether you expect to stay in the home long enough to recover the cost of the refinance. Here’s a quick example from SavvyMoney.com.
If you took out a $200,000, 30-year fixed mortgage in 2018 at a 4.5% interest rate (4.600% APR*) your monthly payment would be $1013 (without taxes and insurance). Refinance now at a rate of 3.66% (3.752% APR*) and your new monthly payment could be $916 — a savings of $97 a month. If the refi cost 2% of the home price or $4,000, which is typical, you’d have to be in the home 41 months to break even. If you’re not planning on staying that long, the deal isn’t worth doing. If you’re planning on staying longer, go ahead.
Here are some tips to make your refi as painless as possible:
Consider all costs. If you’ve been paying your mortgage for about 15 years or longer, it may not make sense to refinance over the long term. Your monthly payment will go down substantially, but at this point in your current mortgage, most of your payment is being applied to principal.
Keep an eye on your credit score. Inquiries can ding your credit score, but there’s a loophole. If you confine mortgage loan shopping to a 30-day period, FICO will recognize that you’re shopping around for a loan and treat all the inquiries as one.
Be prepared to wait. There’s been a bit of a rush on lenders because of the low interest rates. According to SavvyMoney, refinancing applications have risen 183% year over year and hit the highest level of demand since June 2013.
Remember, if your credit score isn’t high enough or you don’t have enough equity, know that you still have time to work on those problems and refinance down the road. If you have any questions about whether or not a refinance is right for you, we have lenders available to walk you through the numbers and the process. See us first.
Who is FIBT?
First International Bank & Trust (FIBT) is a full-service, family-owned, independent community bank serving a wide range of communities across North Dakota, South Dakota, Minnesota, and Arizona.