Refinancing your mortgage in today’s market

The good news is that today’s interest rates remain close to historic lows. For people with good credit, it’s not unusual to see mortgage rates below 4 percent. That’s half what they were a generation ago!

However, even with low interest rates, it has been difficult to qualify for a refinance. That’s partly because the average credit score that it takes to qualify for a loan has been on the rise in recent years. On the other hand, home prices have begun to recover from the housing crash of 2008-2011 and it is now much easier to qualify for a loan given the general increase in equity.

That should be great news. In fact, according to the White House, the average homeowner still paying a mortgage could save up to $3,000 per year simply by refinancing at today’s low interest rates.

Additionally, interest on refinance mortgages secured by your primary residence is still generally tax-deductible.

The bottom line is that this may be the right time for you to refinance. However, before you do, here are some things to consider:

Am I still upside-down? If you are upside-down in your home – meaning you owe more on your mortgage than your home is worth, it may be difficult to refinance. You could potentially use other forms of collateral if you have it available. But that might mean the interest on the loan is not tax deductible. In some cases, you might need to wait until your home’s value recovers sufficiently so there’s enough equity for you to refinance.

Will I have to pay PMI? Generally, you must pay PMI (private mortgage insurance) if your loan-to-value ratio is 80 percent or higher. However, with the increase in home prices, it might make sense to get your home appraised as part of the application for a new loan or refinance. You might not have to pay PMI any longer.

How’s my credit? While it doesn’t have to be perfect, the best interest rates assume your credit is good. Since an inquiry for a mortgage refinance does not count against your FICO score, it’s easy to talk to our loan officers and find out what your rate will be based on your credit.

Will I be staying in the home for a while? If you are paying fees or closing costs for a refinance, you’ll want to have at least a couple of years in the home so your lower payment or faster buildup of equity will offset the cost of refinancing. Every refinance has a “break-even point,” at which time you will have recovered your costs of refinancing. Everything beyond that point is gravy for you.

It is true that refinancing can help you pay off your loan faster, significantly reduce your monthly expenses, or both. But you do have to take the first steps. Call us at 201-659-3900 or come into your nearest Liberty Savings branch for more information.

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