With greater economic uncertainty keeping a lid on interest rates so far in 2016, homeowners who may have missed out on a chance to refinance their mortgages last year have another opportunity. Along with these lower rates, banks have somewhat eased mortgage standards based on the Fed’s most recent Senior Loan Opinion Survey. It is no surprise, then, that mortgage applications jumped by nearly 8% from the week prior, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending February 12, 2016.
Looking just at the refinancing portion of all mortgage activity, that figure came in at 64.3% of all applications, the highest share in a year. Clearly, homeowners who may have missed this opportunity last year don’t appear to be sitting on their hands in 2016. Fool me once…
So, what are some benefits of refinancing? Most homeowners wish to undertake this activity in order to make lower monthly payments, but refinancing has other benefits as well. Doing so could help you switch to a more desirable type of mortgage, like a fixed option (as opposed to an adjustable one). By doing this, you would lock in a consistent monthly payment, as opposed to seeing it jump in the future when interest rates; this is almost inevitable, since they are already at such low levels. It could also make sense to shorten the duration to, say, a 15-year mortgage instead of an existing 30-year one. While this would mean higher monthly payments, those who can afford it can pay off the loan much sooner, thereby saving a substantial amount in interest costs.
With all of that said, there are a few things you should keep in mind even in the face of low mortgage rates. As closing costs can make a noticeable impact on overall savings, you should not seek to refinance if you plan on moving in the next year or two, or at least before you can fully recover your costs. Another factor you may want to consider is how long you would potentially extend making payments if you increase the duration of your mortgage. This would be a particularly important point of consideration if don’t want to make payments into retirement.
Ultimately, the decision on whether to refinance or not boils down to your specific financial situation, though it’s certainly prudent to consider it given where rates are today in order to get the biggest bang for your buck.
If you would like to discuss whether refinancing your mortgage could make sense for you as part of your overall financial picture, please contact Condor Capital Management.