Low Mortgage Rates – Time to Look At How Much You Can Save

Have a mortgage on a residential property? If so, then you really need to look at refinancing. At no time in the last 30 years have interest rates on a 30 year fixed mortgage been this low. Interest rates have moved so low and so fast lately, that even if you refinanced or bought a home as recently as 3 months ago, you may see a financial benefit in refinancing.

Why are rates so low?

Unlike in recent mortgage history, these low rates seem to be staying around. Why? Because investors are nervous, and nervous investors become concerned about preserving their investment and not about the return their investment can get. What are investors nervous about? A combination of the not-so-good economy and the not-so-positive outlook for the near and mid term future has kept investors out of the stock market and into what they perceive is a low risk investment – Treasury bonds. High Treasury bond prices have helped to keep the interest rates on mortgages low – which is right where we want them!

What to do now?

At this point with how low mortgage interest rates are, I recommend that everyone with a home loan check to see if they are able to save money on their mortgage. You may have heard that you need to save 2% on your interest rate or it’s not worth refinancing. That is absolutely incorrect! I am convinced that this advice was started by a bank that wanted you to stay with a higher rate mortgage. A good mortgage lender will be able to share with you what your options are and if it makes financial sense for you to refinance your mortgage. Plus, it’s free to call and speak with a mortgage professional.

What are other homeowners doing?
No closing costs mortgage loans – with this type of loan the lender will pay your closing costs (not add them on to what you owe). You can generally expect to pay a slightly higher interest rate, but you will not have any closing costs. The lender uses the higher interest rate to offset or pay your closing costs. Depending on the size of your loan, your rate may be .125% or .25% higher for this option. This option may make sense if you think you might not keep the home for more than 5 years, or if you think you may need to refinance within a similar time frame. Here are some of the more popular ways and options that I’ve seen people take advantage of the lower rates:

Increasing or decreasing the term of the loan – I am seeing many people go from a 30 year fixed mortgage to a 20, 15, or even a 10 year mortgage. With mortgage rates so low, a shorter term may make sense for you. The shorter the term, the quicker you own your home; I still believe that everyone’s long term goal should be to own their home free and clear. I’ll have a follow up article on this soon.
Just getting a better rate – by far, most people are taking advantage of lower mortgage interest rates by simply lowering their interest rate and thereby having a lower mortgage payment. My recommendation is to do this with a twist by not extending your term. Here is what I mean…if you last refinanced or mortgaged your home 3 years ago and you received a 30 year fixed mortgage, then right now you have 27 years left to pay on that loan. When you refinance, instead of starting over with a new 30 year mortgage, go with a 27 year mortgage. That way you are not starting over…not all lenders do this, so call around till you find one that does.
Home improvement loans – this could be the single most popular loan in terms of questions and requests that I see. While there are many types of home improvement loans, one of my personal favorites is the 203k rehabilitation loan. It can be used for either a purchase or refinance and is very flexible.
Cash out or consolidation loans – refinancing higher rate or cost loans such as a second mortgage, credit cards, student loans, car and recreation loans, etc., into one loan. This is still a great way to save real money on debts you already have.

What should you have ready when you call?

When you call your mortgage lender you will want to have the following items ready. Make sure that you have the complete document and the most current ones available.

Current mortgage information – have your most current mortgage statement or coupon for all of your mortgage loans. Your lender will want to know how much you currently owe, what your current interest rate is, and what type of mortgage you have now.
Current property tax, homeowners insurance (often times called hazard insurance) and association payment (if applicable) amounts.
A general idea as to how much you think your property is worth.
Income documents – have your most current 30 days worth of paystubs available, or if self-employed, have your most current two years Federal Income Tax Forms available.

Have a good recommendation for quality loan originators in other areas? Let me hear about them and tell me why!

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