• FinanceByDoug

To Refi or Not To Refi: low rates and what current homeowners should do about them

Ask 10 different mortgage experts what the future of 30-year fixed rates looks like, and you'll get 10 different answers. From the latest deadly virus to the uncertain trajectory of the US political climate, there seems to be an endless list of potential causes for our inevitable economic doom. Rates have been under 4% since June 2019, but since we aren't certain which straw will break the proverbial camel's back, let's focus on what we know -- rates are LOW. What does this mean for the average homeowner? Refinance.

Cash-out, or rate-and-term -- What's the Difference?

Cash-Out refinances allow you to trade your home equity for cash. At closing, your existing mortgage is paid off, the closing costs are paid, and the remaining funds are given to the borrower. Common uses for cash-out refinances include:

  • home improvements

  • paying off student loan debt

  • paying off high-interest debt, such as credit cards, car loans, etc.

  • much needed vacation

One thing to remember about cash-out refinances is that it is not free money. For all intents and purposes, you're borrowing money from yourself in order to make a purchase or pay off debt.

Rate-and-term refinances allows borrowers to replace an existing mortgage with one that has a lower rate or more favorable term. Rate-and-terms are most often used by borrowers who have owned their home for more than a year however, sometimes plans change and borrowers refinance as soon as six months after their purchase. Has your home increased in value since you've bought it? You may be sitting on more equity than you think; a rate-and-term refi might allow you to get rid of that Mortgage Insurance payment!

A common question when talking to potential borrowers about refinancing is, "Have you lived in your home for more than a year?" This gives us a better idea as to what their current rate might be or how much equity they may have. After all, we wouldn't want you to go through the whole process of refinancing if it will end up costing you money in the long run!

Whether you've got debt that needs to be paid off or just a fear of missing out on the low rates, I encourage you to speak with your local Sovereign Mortgage loan originator. Save yourself time, money, and future headaches by speaking with a mortgage professional about your home loan options.

Doug Kennell

Sr.BranchManager, LoanOriginator