The Federal Reserve has taken to lowering interest rates in an effort to stabilize the real estate market and economy amid the COVID-19 global pandemic. Interest rates aren’t just low… they are at an all-time low. If you’re looking into refinancing your home to take advantage of the situation, here is what Kansas City homeowners need to know about refinancing their homes while interest rates are low.
WHAT’S THE GOAL
Before you even start looking into anything else, you want to determine what goals you would like to accomplish by refinancing your home. The process of refinancing isn’t free, so it might not make sense to make a move if you are upgrading to only a marginally better interest rate.
One possibility is you are looking to reduce the term of your loan in order to get it paid off in a shorter period of time. In a situation like this, your monthly payments could be similar to your current note that has a longer lifespan due to the lower interest rate.
Another goal might be simply to obtain a lower interest rate. This will reduce the amount of interest that you pay throughout the entirety of your mortgage and save you money in the long run.
Lastly, you may also want to pull out some equity so that you have cash that you may need for a variety of reasons (remodel, vacation, investment, etc.). This is called a cash-out refinance and may be a little more challenging to obtain in today’s climate given that lenders see these as riskier.
SCOUR YOUR CREDIT REPORT
It’s always a good idea to keep tabs on your credit history by ordering your free annual credit report and going through all of the details it provides.
You may be surprised to find a debt listed that you had forgotten about, or you could even discover an error or two that would become obstacles down the road when you’re trying to take advantage of refinancing when interest rates are low. Putting in the time and effort to review everything in your credit report, double-check for any issues, and know your credit score puts you in the best possible position when applying with your chosen mortgage lender.
Just like when initially applying for a mortgage, you do not have to be free of any and all debt to be a viable and desirable applicant.
KNOW YOUR EQUITY
Another key piece of information that could end up doing you some good when interest rates are low is calculating your established home equity.
You can do this simple equation by taking the current value of your home (ask us for a free home value report!) or original amount of your home loan and subtracting how much is remaining from that loan. The resulting difference is the equity you have built in that home. The reason this could become useful is as leverage when discussing the refinance with your mortgage lender to lock in the best possible interest rate that you can.
If you have yet to pay off the first 20 percent of your home and are paying private mortgage insurance, a lender is likely to view you as a liability in your current scenario.
RESEARCH LENDERS WHILE INTEREST RATES ARE LOW
Once you know what you’re looking to get out of your refinance and have your credit report under control, it’s time to find the right mortgage lender for your refinance.
While there are always the big national banks to turn to, it may be more beneficial for you to take a look at your local banks and credit unions. Most local branches have websites containing their home loan interest rates and a calculator to help you figure out what your new monthly payment would be alongside any application processing fees.
Be careful when looking through the calculators, as they are unlikely to include insurance or taxes in your new total monthly payment.
We are happy to guide you to some of our trusted local experts in lending!
RUN THE NUMBERS
As you’re researching the different lenders, take the best interest rates you can find and go into great detail to find the best deal for you.
As we recommended in our last point, include not just the principal and interest payments but your insurance, taxes, and PMI. Find out how much lower your new monthly payment would be, and then determine how long those savings will take to build up to the point you’re breaking even with the refinance processing fees.
Professional Guidance for When Interest Rates Are Low
Undertaking the paperwork journey to refinance your home requires laying some solid groundwork to get the most out of it. If you would like to take advantage of refinancing now that interest rates are low, contact us today at 785.817.6699!