Friday, June 20, 2014

Why Now is the Time to Refinance

I know you hear those commercials on the radio and television all the time about why “right now is the best time to refinance”. It’s amazing because it always comes from the same people, and they play the same ad every week of every year. This tells me that they think anytime is the best time to refinance. I actually think that now be may the best, and one of the last times that many people will have the want and ability to do so, and let me explain why.

People have been carrying their toxic interest-only loans for a long time now, those that were fortunate enough to weather the storm and not have to file for bankruptcy. Those loans have come with rising interest rates and payments that have become downright unmanageable. Makes you wonder why they haven’t refinanced already, huh? Well most of them were underwater on their mortgages, until now at least. We have seen home prices steadily rising since last year, and the trend continues even more this year. This means that people actually have the required home equity to refinance whereas in the past they simply did not. Those that still lack the home equity may have additional cash saved up, and improved confidence in the home market, that they are now willing to sink more money into their house in order to pay down their loans more.

Ok, so we know home values are rising, but what about interest rates? Well, interest rates really did reach historic lows last year, and I may never see them that low in my life time again. While rates are up about a point over last year they aren’t quite at a point where it is pricing people out of the market. After all, it’s been a long time since rates were even at this level. While I’m sure you would’ve loved to refinance your home loan last year at those super low rates it probably just wasn’t possible based on your home value. This is exactly why we are now in a the middle of the perfect storm of rising home values and still very low interest rates. In fact, many people can refinance their loans and use the additional money to continue to aggressively pay down their principal loan amounts.

While I don’t think purchasing a house is necessarily for everyone, I do think that refinancing is right for any homeowner who is paying a higher rate than what is available now. There are many low fee refinance options available that will allow homeowners to payback the closing costs within months. There was a point a couple years ago that I refinanced my house three times in a year alone. I was fortunate enough to buy at the downside of the market and have the required equity, but it still shows just how beneficial refinancing can really be. At the very least there are plenty of loan calculators available to you online, and plenty of loan officers willing to help you decide the right path for you.


2 comments:

  1. Hello and nice to meet you! I am a 50+ Personal Finance Blogger and I've been searching for others like me. I have 3 mortgages on my home (2 are quite small and relate to the original mortgage and one a debt consolidation loan, the third is our latest debt consolidation loan and is the largest). I have good rates on all three and my plan is to have the two smaller ones paid before they renew in 2015 and 2017 respectively. The large one renews next March, so I may renew early if I can lock in a good rate until 2018, which is when I hope to have it paid off. Any thoughts about going variable or fixed for a 3+ year term? The rate is 2.79% and I hope to get it even lower.

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  2. We have one of our step mortgages due next March, so I think I can renew it 6 months early. I'm looking to lock in a good rate this fall, and then will be done in 4 years. Still not sure if I'm gonna go variable or fixed. I will do the math assuming if rates start to increase they will go up only a .25 percent perhaps every quarter (max). It may still serve me to take a chance and go variable to get the lowest rate.

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