June 1, 2020
Mortgage loan interest rates have been on a wild ride in 2020. Coronavirus, incredible lows for rates, market volatility, and much more have all created an environment that feels as unpredictable as mortgage rates have seemed. And the rollercoaster isn’t over yet.
Finance blogs are still reporting as late as June 1, 2020, that refinance loan demand has actually grown larger than the demand for new purchase mortgages.
That isn’t shocking in an era where rates have, at least on paper, dipped below the three percent range at times (your experience will definitely vary).
Those with the ability to refinance into a lower interest rate save money over the course of the mortgage, assuming these borrowers pay on the mortgage over a long period of time.
Understanding The Refinance Loan
The key to understanding whether a refi is right for you means understanding your own financial needs and goals before you decide whether to choose a cash-out refi, no cash-out, FHA Streamline, etc.
Refinancing doesn’t automatically save you money. You need a goal, and you need a plan. Why?
Closing Costs, Lender Fees
FHA home loans, like every other type of mortgage, have closing costs and lender fees to contend with. Borrowers always pay some money up front for some closing costs in most cases, with the ability to finance some other approved costs depending on the type of refinance loan–ask your lender about the details of these costs based on the loan you need.
Refinance And Save–With Planning
Add the amount of money you expect to pay in closing costs on your mortgage and compare it to the amount of money you save over the lifetime of the loan with the lower interest rate; if you don’t plan to keep your home for the full term of the mortgage, refinancing to get a lower interest rate may not save you as much as you think (over the time period you actually do wind up paying on the mortgage as opposed to the hypothetical 30-year note).
Those who refinance with the idea of keeping the home for the full loan term potentially realize greater long-term savings. But you need to do the math on the interest you pay over five years. Compare it to the interest you pay over 30 years.
Refinancing to get a lower monthly payment is a different issue. Those who need more money left over at the end of the month may see a benefit in refinancing regardless of how long they plan to remain in the home. But not all refinance loans automatically result in a lower payment.
It’s best to discuss your goals and financial needs with your loan officer before deciding on a specific type of refi loan. Be up front with your loan officer about yoru goals–if you need a lower payment, don’t be shy about asking for one and how it can be accomplished through refinancing.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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