- When Is It A Good Idea To Refinance Your Mortgage?
- When it’s a good idea to refinance your mortgage
- What is a cash-out mortgage refinance?
- How long does it take to recoup the costs of refinancing?
- How to calculate your break-even point for closing costs
- Example of a mortgage refinance
- How long does it take to refinance a mortgage?
- Learn more:
- When to Refinance a Mortgage: Is Now a Good Time?
- Is now a good time to refinance?
- How much does it cost to refinance?
- How to know when you’ll break even
- How long does it take to refinance?
- Why should you refinance?
- To save on interest
- To pay off your loan sooner
- To change to a different loan type
- To tap into home equity
- Should I Refinance My Mortgage?
- What the New Lower Interest Rates Mean for You
- What Is Refinancing?
- How Does Refinancing Work?
- When To Refinance Your Mortgage
- 1. You Have An Adjustable Rate Mortgage (ARM)
- 2. The Length Of Your Mortgage Is Over 15 Years
- 3. You Have a High Interest Rate Loan
- 4. Your Second Mortgage Is More Than Half Of Your Income
- How Much Does It Cost To Refinance?
- Ready To Refinance?
- Should I Refinance My Mortgage Now?| NextAdvisor with TIME
- What New Lower Interest Rates Mean for You
- Why You Shouldn’t Refinance Now
- Economic Stability
- Worsening credit score
- Stricter requirements
- History of late payments
- Inconsistent job history
- A longer wait
- Is Now a Good Time to Refinance?
When Is It A Good Idea To Refinance Your Mortgage?
When mortgage rates fall, many homeowners refinance their loans. While refinance activity is up dramatically over last year, that doesn’t mean it’s always the best move. Knowing when to refinance your mortgage is the trick.
When it’s a good idea to refinance your mortgage
Generally, if refinancing will save you money, help you build equity and pay off your mortgage faster, it’s a good decision. With rates this low, even people who have fairly new mortgages may be able to benefit from refinancing.
Consider refinancing if you can lower your interest rate by one-half to three-quarters of a percentage point — this can substantially lower your monthly payment.
Make sure your total monthly savings offset the cost of refinancing, however. It may not be a good idea if you plan to move in the next two years, which gives you little time to recoup the cost.
The question of when to refinance is not just about interest rates, either; it’s about your credit being good enough to qualify for the right refinance loan. Mortgage interest rates are determined by market factors, including the yields on long-term Treasury bonds, and the best rates and terms go to those with the best credit.
Your financial goals, how long you plan to stay in your home, how much equity you have in the home and your overall financial condition are important considerations when it comes to refinancing. Ask yourself the right questions.
There are a variety of ways to refinance your mortgage. Finding the right loan depends on your goals. You may want to switch from an adjustable-rate mortgage to a fixed-rate loan that has a steady monthly payment, or you may want to shorten the term of your loan from a 30-year to a 15-year and save yourself a bundle in interest charges.
A refi is also a way to get rid of private mortgage insurance after you have reached 20 percent equity in your home.
Most homeowners opt for a straight rate-and-term refinance that lowers their interest rate and gives them a comfortable repayment term. Some want a lower monthly payment to free up money for other expenses, such as college tuition or an auto loan.
What is a cash-out mortgage refinance?
Other homeowners go with a cash-out refinance, in which they borrow more than they owe on the home and use the cash to retire credit card debt, pay for home renovations or some other major expense.
Wiping out credit card balances with a lower-interest loan can be a wise move, but if you start racking up card balances again, you’re setting yourself back and increasing your risk. Your mortgage is a debt secured by your home; if you start missing mortgage payments, you could lose your home to foreclosure.
“A borrower should consult with a mortgage professional to determine if their financial needs are best suited for a cash-out refinance vs. other forms of credit,” says Richard Liu, a mortgage consultant for C2 Financial Corp., a San Diego-based mortgage brokerage.
How long does it take to recoup the costs of refinancing?
The interest rate is not the only cost to weigh when you’re considering whether refinancing is worth it. There are costs to close the refi loan, and they can be steep. Expect closing costs to total 2 percent to 5 percent of the principal amount of the loan. If you borrow $200,000 and closing costs are 3 percent of that, you would owe $6,000 at closing.
There’s also a new refinancing fee, effective Dec. 1, which tacks on 0.5 percent of the loan balance to your closing costs if your refi is higher than $125,000. This doesn’t apply to FHA or VA refinances.
Rather than require all that money upfront, many lenders let you roll the closing costs into your principal balance and finance them as part of the loan.
To decide whether a refinance makes sense, calculate how long it will take for the cost of the mortgage refinance to pay for itself. If you plan to sell the house before your break-even point, refinancing might not be worth it.
“If a borrower is refinancing strictly to lower monthly mortgage payments and closing costs are $2,400, the borrower should expect to save at least this amount in interest payments for the duration they plan to have the loan,” says Liu.
To determine your break-even point, divide the total closing costs by the amount you save each month with your new payment.
How to calculate your break-even point for closing costs
Let’s say your new mortgage saves you $192 a month and closing costs are $3,000.
$3,000 / $192 a month in savings = 15.6 months to break even
If you plan to sell the house before you break even, refinancing is not a good strategy.
Sign up for a Bankrate account to crunch the numbers with recommended mortgage and refinance calculators.
Example of a mortgage refinance
Let’s say you took out a 30-year mortgage for $150,000 at a fixed interest rate of 6 percent. Your monthly payment is $899 and over the life of the loan, you’d pay $323,755, including $173,755 in interest.
Five years into the loan, you’ve paid $10,418 toward the principal and $43,541 in interest. Now you want to refinance the remaining $139,581 of your principal balance with a new 30-year fixed-rate loan of 4.5 percent. Using Bankrate’s mortgage refinance calculator, you can figure out whether this would be a money-saving move.
Your new loan would slash your monthly mortgage payment by $192 a month — to $707. Over the life of the loan, you’d pay $254,605, of which $115,024 would be interest. Add in the $53,959 in principal and interest you paid in five years on the previous mortgage and your total cost will be $308,564 — including $158,565 in interest.
By refinancing, you not only lower your monthly payments significantly; you see a long-term savings of $15,190 in interest.
How long does it take to refinance a mortgage?
The time it takes to refinance depends on your lender as well as how long it takes to complete inspections, appraisals, credit checks and other requirements. Many lenders’ websites allow you to read about different loan products, compare interest rates, fill out loan applications and submit documents.
“Within the past few years, technology has streamlined the mortgage process tremendously,” says Liu. “With online applications, mobile document-scanning apps and e-signatures, borrowers can perform most tasks without printing a single document. Most refinances can be closed within 30 days.”
Use Bankrate’s mortgage calculator to compare your own loan scenarios:
- See what happens when you input different mortgage terms (in years or months).
- Reveal the amortization schedule to see how much total interest you would pay.
When to Refinance a Mortgage: Is Now a Good Time?
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Once mortgage rates start dropping, homeowners are often tempted to refinance their home loans.
Refinancing replaces your current mortgage with a new loan and new terms. With rates at historic lows, millions of homeowners have already made this move — and another 18 million could potentially save money from a refinance, according to mortgage data firm Black Knight.
But it’s not the right choice for everyone, even if you qualify for a lower interest rate. You’ll also want to consider how long you’ll be in the home and how long it takes to recoup expenses.
Here’s how to tell whether now is a good time to refinance your home:
Is now a good time to refinance?
Generally, a mortgage refinance is a good idea if it will save you money. Mortgage experts say you should consider this move if you can lower your interest rate by at least 0.75%.
For example: Let’s say you have a 30-year, $300,000 loan with a 4% fixed mortgage rate and a monthly payment of $1,567. Refinancing to a new 30-year loan with a 3.25% interest rate can lower your payment by $134, which adds up to $48,240 over the life of the loan.
And if you’ve paid off some of your principal since taking out the original mortgage, your new loan will be a lower balance. That can further lower your monthly payment and save you more money.
Learn More: How to Get the Best Mortgage Rates
How much does it cost to refinance?
Even if you qualify for a lower interest rate, you’ll need to consider the costs of refinancing your mortgage to determine if it’s worth it.
Closing costs typically amount to 2% to 5% of the principal amount of the loan. So if you borrow $300,000 and closing costs are 2%, then you would owe $6,000 at closing.
Other factors, such as where you live, influence the price tag. Here are some of the common costs that come with refinancing:
|Loan origination fee||0.5% to 1.5% of the loan amount|
|Appraisal fee||$300 to $500|
|Title insurance fee||$1,000|
|Credit report fee||$30 to $50|
|Prepaid interest charges||Depends on your interest rate and when your loan closes|
|Mortgage points||Depends on how many points you pay for (1% of your mortgage loan amount equals 1 point)|
Some lenders may offer you a no-cost refinance, which means you won’t pay closing costs upfront. But they’ll make up for this by either wrapping the closing costs into the mortgage principal or increasing your interest rate. You might still come out ahead, but compare the interest costs on your original loan and the new loan to be sure.
How to know when you’ll break even
To figure out how long it will take to recoup your refinance expenses, divide the amount of your closing costs by the amount you save each month. This is called the “break-even point” of a mortgage refinance.
For instance, it would take about 35 months to break even on $5,000 in closing costs if your monthly payment drops by $143. But if you sell the house before the break even point, you’ll lose money in the deal. If you know you’ll move soon, then refinancing might not be worth it.
How long does it take to refinance?
A mortgage refinance typically takes 30 to 45 days to complete, but it may take longer if your lender is dealing with high loan demand or something else slows down the deal. One way to prevent losing out on a good mortgage rate is to lock in your rate for a given period, around 30 to 60 days.
Refinancing through Credible will streamline the application process so you can save time and potentially get to the closing table faster. Use the form below to get started.
Why should you refinance?
By refinancing, you may be able to lower your monthly mortgage payments, save on interest, get a shorter loan term or take out cash — but you generally can’t do it all at once. You’ll need to figure out your main goals before applying.
To save on interest
If you qualify for a lower interest rate, you can save on interest costs while also lowering your monthly payment. To see if you come out ahead, figure the interest costs on your current loan and the new mortgage.
To pay off your loan sooner
If getting debt ASAP is important to you, then refinancing into a shorter-term loan can help. While your monthly payments will ly climb because you’re paying off debt within a shorter time frame, you could save a lot on interest costs.
Take a look at the original mortgage from the example above. If you refinance from a 30-year loan with a 4% rate into a 15-year mortgage with a 3% rate, you’ll take on a higher monthly payment, but you’ll also pay off your mortgage 14 years sooner. In the process, you save $105,911 in interest compared to your original loan.
To change to a different loan type
Homeowners can also refinance from an adjustable-rate mortgage (ARM) to a fixed-rate loan — or vice versa.
To tap into home equity
Tapping into your home equity through a cash-out refinance is another reason to refinance. This involves getting a new mortgage for more than your current balance and pocketing the difference.
You’ll pay off a larger mortgage balance, but you can put the excess money toward higher-interest debt or home renovations.
If you’re considering a cash-out refinance, be sure to consider as many lenders as possible. Credible makes finding the best deal easy — you can compare multiple lenders and see prequalified rates in as little as three minutes.
Home » All » Mortgages » When to Refinance a Mortgage: Is Now a Good Time?
Should I Refinance My Mortgage?
Everywhere you turn right now, there’s a new wave of hype about mortgage refinancing.
That’s all thanks to the Federal Reserve dropping interest rates by half a percentage point at the beginning of March 2020 and then dropping again mid-month to between 0–0.25%.
1,2 Zero percent is pretty attention grabbing, but keep in mind that it doesn’t mean you can get a mortgage with 0% interest (wouldn’t that be nice).
All of this interest-rate shifting is in an effort to boost the economy in the middle of the coronavirus or COVID-19 (you’ve probably heard all about that, haven’t you?). Lower interest rates are great and all, but how do you know if it’s the right time for you to actually refinance?
One thing’s for sure, with rates this low, it’s worth taking the time to see what’s best for your specific situation. And you’ll sleep better knowing you’re making informed, well-thought-out decisions for you and your family and not just jumping on a bandwagon.
What the New Lower Interest Rates Mean for You
If you were already tossing around the idea of refinancing, these low rates couldn’t have come at a more perfect time.
Getting a mortgage with a 1–2% drop in interest rate can make a huge difference in your monthly budget and ability to pay off your mortgage faster.
And if you were thinking of refinancing from your current mortgage term down to a 15-year fixed-rate mortgage (the only one we recommend), now is the prime time to do it.
Pay off your home faster by refinancing with a new low rate!
And if you’re really serious about refinancing, be sure to actually submit a loan application. Some mortgage companies are overstating their published rates right now to slow down the swarm of people asking about lower rates.3 So be on the lookout for that. If you want to see the true low interest rate, your best bet is to submit the application.
Oh, and in case you’re wondering—just because mortgage interest rates are crazy low right now, that doesn’t mean you should roll up all your other debt (credit cards, student loans, etc.) into a refinanced mortgage. Nope. Just don’t.
You want to pay off your smaller debts first (and get energized from those wins). Lumping your student loan debt into your mortgage means it’s going to take a lot more time to pay off those loans and your mortgage too.
It puts you even further away from completing either of those goals. No thanks.
What Is Refinancing?
Refinancing is the process of getting a new mortgage by changing the terms of the one you already have on your home. You might be thinking of refinancing your mortgage for a few reasons— taking advantage of lower interest rates, switching mortgage companies, reducing monthly mortgage payments, or using money from the refinance for a big purchase.
Don’t worry—refinancing doesn’t mean you end up with two mortgages! Instead, your first loan is technically paid off through the refinancing process and a second loan is created in its place.
How Does Refinancing Work?
To refinance your mortgage, you'll need to shop and apply for a loan—just when you applied for your original mortgage. You could contact a lender directly, or use a broker to see if you’re approved and can qualify for refinancing.
To see if you would qualify, you’ll need to dig out some paperwork to make your case. Lenders look for different things, but generally, they want you to meet the following requirements:
- A Maintained Original Mortgage: Lenders need proof that you’ve maintained and paid your original mortgage for at least 12 months before they’ll consider your loan for refinancing.
- Equity: You’ll need to show you have at least 10–20% equity in your home.
- Income: You have to prove you have a regular income, and lenders will also look at your debt-to-income ratio. Basically, they want to make sure you can still pay your bills the amount of money you make, and that any existing debt payments you have won’t interfere with your refinanced mortgage payment every month.
- Credit Status: With lenders who ask for your credit score, having a lower credit score may result in higher interest rates.
But what happens when you don’t have any debt and no credit score? Don’t worry! Lenders Churchill Mortgage will use a manual underwriting process to determine your risk or lihood of paying your mortgage on time.
When To Refinance Your Mortgage
The time to refinance is when you want to make a less-than-desirable mortgage better with a new interest rate.
Do a break-even analysis to see if refinancing is something worth doing in your situation. A break even analysis means running the numbers on whether you’ll be in your home long enough to benefit from the savings that a lower interest rate and payment could bring.
Then you should work out how long it’ll take you to make up the closing costs you’ll have to pay for your refinanced mortgage. Yes, there will be closing costs—we’ll get to them soon!
In general, refinancing makes the most sense if you fall into one of these categories:
1. You Have An Adjustable Rate Mortgage (ARM)
With your ARM having interest rates that are adjustable, you might start off with the first few years at a fixed rate. But after that, the rate can adjust multiple factors the mortgage market, LIBOR market index, and the rate at which banks themselves lend each other money. Bottom line is, ARMs transfer the risk of rising interest rates to you—the homeowner.
So, in the long run, an ARM can cost you an arm and a leg! (Yes, we went there.) That’s when refinancing into a fixed-rate mortgage could be a good financial move. It’s worth it to avoid the risk of your payments going up when the rate adjusts.
2. The Length Of Your Mortgage Is Over 15 Years
If your original mortgage is a 30-year term (or more), then refinancing is a good way to get to the ultimate goal of locking in a 15-year fixed-rate mortgage—ideally with a new payment that’s no more than 25% of your take-home pay.
But if your interest rate is low enough on a 30-year fixed-rate mortgage to compete with the 15-year rates out there, make sure refinancing just to get the shorter term isn’t going to cost you more. You’re better off making extra payments (and are committed to making them) on your 30-year mortgage every month to shorten your payment schedule.
Simply put, you want to own your home as soon as possible instead of your home owning you! Use our mortgage payoff calculator to run your numbers and see what your monthly payment would be on a 15-year loan.
3. You Have a High Interest Rate Loan
If your mortgage has a higher interest rate compared to ones in the current market, then refinancing could be a smart financial move if it lowers your interest rate or shortens your payment schedule.
If you can find a loan that offers a reduction of 1–2% in its interest rate, you should consider it. Remember to factor in your break-even analysis too! Refinance only if you’re planning to stay in your home for a long time, because it will give you time to make up those closing costs.
4. Your Second Mortgage Is More Than Half Of Your Income
A lot of homeowners with second mortgages want to roll it into a refinance of their first mortgage. But not so fast! If the balance on your second mortgage is less than half of your annual income, you would do better to just pay it off with the rest of your debt through your debt snowball.
But if the balance is higher than half of your annual income, you could refinance your second mortgage along with your first one. This will put you in a stronger position to tackle the other debts you might have before you pull your resources together to pay off your mortgages once and for all!
How Much Does It Cost To Refinance?
Depending on the lender, your home’s location, and the amount you borrow, closing costs for a refinance can range from 3–6% of the loan amount.4 So if your loan amount was $100,000, you could end up paying $3,000 in fees at a minimum.
Refinancing costs typically do not include property taxes, mortgage insurance and homeowner’s insurance because they were set up when you first bought your home. Remember, you’re revising the original mortgage, not starting completely from scratch.
Refinance closing costs include:
- Refinance application, a new home appraisal, and title search
- Home inspection fee
- Lender’s attorney review fee
- Origination fee
- Points fees
While you may not be able to avoid all of these closing costs, you can avoid mortgage points fees by asking for a par quote or zero quote. That means the closing cost estimates will not include points.
So, to get your break even analysis, let’s say your closing costs will be $3,000 (3%) on a $100,000 refinanced mortgage. And that your new refinanced interest rate is 1% lower than your previous rate. If we look at how much that 1% reduction would save you every year, it would take around three years to make up those $3,000 in closing costs.
And once you’ve made up the closing costs, you can enjoy the benefits of the lower interest rates through till the end of your mortgage term (or a time down the road if you decide to sell your home.)
You can think about refinancing your mortgage if it means you’re locking in a lower rate of interest at a fixed rate or reducing your mortgage term length. The savings you could make from doing it for the reasons we outlined earlier could be used to help tackle the important stuff, paying down debt or saving for retirement.
Refinancing is a good idea if it helps you take control of your monthly bills. You will feel more confident going forward if you have more money to put toward becoming totally debt-free. Plus, just imagine if you owned your home outright!
But there are times when refinancing your mortgage would not be a good idea. It wouldn’t be wise to refinance (and get into more debt) because you’d a new car, want to remodel your kitchen, or plan to pay off credit card bills. Wiping out your home equity to buy new stuff you don’t need puts your home at risk—especially if you lose your job or encounter other financial difficulties.
And if you’re currently work because of the coronavirus and finding it difficult to pay your mortgage, there’s good news for you.
Depending on your specific situation, you may be able to have your mortgage payments lowered or put on hold for the next 12 months.
5 That can really help to free up the burden you might be feeling right now if you’re concerned about when you’ll see your next paycheck.
Ready To Refinance?
Refinancing your mortgage is worth it if you’re planning to stay in your home for a long while. That’s when the lower interest rates you want to take advantage of really start to pay off!
If you’re ready to refinance, get with the home loan specialists at Churchill Mortgage. They’ll help you get a mortgage you won’t regret!
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Should I Refinance My Mortgage Now?| NextAdvisor with TIME
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If you’ve got a mortgage, it’s almost definitely one of your biggest financial burdens. And with mortgage interest rates near historic lows right now, this could be an ideal time for you to seize the opportunity to refinance and save.
The low rates we’re currently seeing are a small silver lining of the COVID-19 economy. In an effort to shore up the market and encourage home buying, the Federal Reserve slashed interest rates, and mortgage rates followed suit.
At the end of April, they sat at an all-time low. Right now, the average interest rate for a 30-year fixed-rate mortgage is 3.23%, while a 15-year fixed-rate mortgage comes with an average interest rate of 2.77%. People are paying attention, too: Over a single-week span in March, mortgage applications increased by 55.4% compared to the week prior.
Clearly, those rates don’t exist in a vacuum, though, and refinancing only makes sense if it fits in context with your overall financial picture.
And while personal finance experts say that a refinance could save thousands of dollars over the long-term for the right people, they’re also raising a big red flag. In order to secure a refinance that’s worth your while, you need to measure up to newly strict lending requirements.
That means you’ll need to be able to prove a steady income, a challenge many will face with the economic uncertainty COVID-19 continues to create.
What New Lower Interest Rates Mean for You
Because rates are at a historic low, many homeowners could lower their rates and save thousands by refinancing.
And many are taking advantage of the opportunity. While the mortgage industry usually handles a volume of somewhere between $1.5 and 3 trillion in a given year, experts are projecting that figure will hit $6 trillion this year, says Michael Chabot, SVP of residential lending at Draper & Kramer Mortgage Corp.
Scoring a lower rate, which tends to reduce your monthly payments, isn’t the only benefit. Other perks include:
For more on refinancing and how it works, check out our full guide here.
Why You Shouldn’t Refinance Now
It’s an exciting time to explore the possibility of refinancing your mortgage. But a refi isn’t right for everyone. Here are a few factors that could make it a better idea to stick with the mortgage you have.
When we polled experts and scoured the news, we found one glaring reason not to refinance: the job market’s uncertainty. While refinancing can help you lower your home loan’s total cost across its lifespan, there is a key timeliness component to consider.
Since a refinance is essentially getting a new mortgage to replace your current one, with a whole new set of closing and other loan origination costs, it usually takes at least a few years to recoup the costs and start seeing benefits from refinancing. If you lose your source of income, you could be forced to sell your home or, worse yet, foreclose.
Doing so in the next couple of years will almost definitely prevent you from realizing any benefits from refinancing.
If you’re concerned about your job stability, Chabot advises waiting to refinance.
The refi process can take several months to complete, and that effort will be wasted if you don’t have a stable source of income when you’re ready to sign the papers.
“If you know you’re going to be laid off, I’d tell you not to do it,” he says. That’s because collecting unemployment essentially disqualifies you from refinancing.
Dominic Turano, a senior vice president and loan officer for Atlantic Coast Mortgage, echoes the sentiment. “Lenders are required to warrant that you’ll be able to make the payment on the new loan, and unemployment income isn’t considered stable, recurring income,” he says.
If you don’t feel you have a sturdy foundation under you at your job, you should probably not initiate the monthslong process of refinancing, which can include extensive rate shopping, a home appraisal, and gathering reams of paperwork and documentation.
Worsening credit score
If your credit score has gone down since you originally secured your financing for your home, you may not be able to capitalize on the full benefit of low interest rates.
That said, if your score has only decreased slightly, we still recommend checking on the rates you’d be able to secure your current credit score.
Because rates are so low right now, you may be able to get a lower rate even with a slightly worse credit score. Run the numbers to see if there’s any benefit for you.
If your score has dropped drastically, though, skip it. The hard inquiry required during the refinance process will only hurt your credit score more.
Also, don’t forget you can take strides to improve your credit score. There are very few quick fixes for bad credit, but making changes now helps you boost your score over time so you can be ready the next time a financial opportunity arises.
No surprise here: Mortgage lenders aren’t feeling particularly comfortable in the current economic environment.
To protect themselves, they’re tightening lending requirements from minimum credit scores to more stringent employment verification processes.
Even if you were able to secure a refinance at the beginning of this year, these stricter requirements might make it impossible for you to refi now.
Turano explains, “The coronavirus issue has created a ton of turmoil in the mortgage industry. While rates are low, loan guidelines are changing regularly, and the rules typically governing mortgage-backed securities have also changed.” He adds, “These changes have generally created a more restrictive lending environment.”
History of late payments
Each time you miss a payment, your credit score takes a dip. And in light of the tightening requirements, our mortgage experts say they see across the industry, and chronic late payments aren’t going to do you any favors during the refi process.
Your mortgage payment is not the only bill to stay diligent about, either. Make sure you stay on top of your car payments, student loans, credit card payments, and any other dues.
Set calendar reminders or set up automatic payment to give yourself some protection against forgetfulness.
It will take time for your credit score to recover, but starting to stay on top of your payments now puts you on the path to success.
Before you jump on the refinance bandwagon, take a close look at your income stability. If you’re not entirely secure, think twice before embarking on a refinance loan journey.
Inconsistent job history
“Job stability is a prerequisite to refinance,” says Karen Chiu, a business development manager at the lender New American Funding.
“For individuals with no documentation or alternate documentation for stated income, this is not a good time to refinance,” Chiu says. As lenders tighten requirements around refinancing, she says she expects fewer programs to be available allowing for flexibility in the individual’s income stream.
But if you were furloughed during the pandemic and eventually get back to work, you’re probably going to be in luck. Lenders just want to see proof of income. “As long as you have one pay stub and can prove you’re back to work, you can refinance,” Chabot says.
A longer wait
Chabot points out another potential hurdle to refinancing right now, especially for impatient homeowners.
In regards to the increased volume the mortgage industry is seeing right now, he says, “The industry just isn’t set up to handle that.
” He adds, “The biggest challenge has just been getting loans in, getting them processed and underwritten. Some banks are saying six months to close loans because they just don’t have the resources.”
Is Now a Good Time to Refinance?
Ultimately, to determine if you should refinance, crunch the numbers yourself. “Here’s what I tell everybody,” Chabot says. “I think it’s a good time to refinance if it’s right for your financial situation.” Look for savings of at least a half percent, and make sure you feel extremely confident you’ll be able to cover your new monthly payment for the life of the loan.
Also, don’t feel rushed. Several experts agreed that low mortgage rates will not be going away any time soon.
If you’re not feeling certain about your employment in the coming months, it could make sense to wait until later in the year to explore a refi.