ATLANTA - Home loan interest rates are lower than they’ve been in several years, yet millions of American homeowners who should refinance to these lower rates have not done so, and it's literally costing them money every day that they wait.
No one can predict where rates are headed, so what's stopping you?Here to sort it all out is real estate expert John Adams.
Question: Why is now the right time to refinance?
Because rates may never be this low again in our lifetimes. Thirty-year fixed rates are right around 3.4 percent, 15-year loans are right around 2.6 percent, and there are lots of viewers who could save thousands of dollars each year for the foreseeable future.
So, who should consider refinancing?
Anyone who owes at least $50,000 with an interest rate of anything at 4 percent or above.
Can you give an example?
We are seeing a LOT of people with about 20 years left on their loan at about 5 percent. If they plan to stay forever, they refinance to a 15 year fixed rate at 2.6% and see their payments stay about the same, but their loan is paid off five years early. Perfect for someone looking to retire in about 15 years.
What about adjustable-rate loans?
The Federal Reserve has been working overtime to keep the mortgage industry afloat and stabilize mortgage rates as it wades through deep waters generated by the coronavirus pandemic. The real beneficiary has been 15-year fixed-rate mortgages, which are viewed favorably by investors as they have a very low default rate.
Right now, adjustable loans are actually more expensive than fixed-rate products. Now is the time to lock in a fixed rate!
Any other scenarios our viewers need to know about?
Let's say we have a couple approaching retirement who plan to pay off their loan in the next 10 -12 years. Their current rate is anything above 4 percent. Depending on their loan amount, they could refinance with a 10 year fixed rate at 2.6%, maintain their old payment, and likely have the whole loan balance paid off at the end of 6 to 7 years. That means they get to retire maybe 5 years ahead of schedule.
BUT WHAT ABOUT CLOSING COSTS?
All refinancings cost money. There is no such thing as a cost-free loan closing, but there is a way to get someone else to pay for it.
If you are willing to accept a slightly higher interest rate on your loan, the lender can make a PREMIUM when he sells your loan, and use that PREMIUM to pay for your closing costs. Depending on how much you borrow, you might be talking about half a percentage point added to your loan.
And there's another way:
If you REALLY want to get the lowest rate possible and don't want to pay closing costs now, you can usually have them ADDED to the amount you are refinancing, then use them to pay for your own closing. Effectively, you have borrowed your own closing costs, but it allowed you to retain the lowest possible rate.
So the advice to refinance applies to everyone?
Because everyone's situation is different, it's not possible to review every possible benefit here, but trust me when I say this: If you owe more than $50,000 and your interest rate is anything above 4 percent, you should run from the TV and call a reputable lender right now. These rates are NOT sustainable, regardless of what anyone says, and long term interest rates WILL eventually move higher.
When that happens, your savings will add up month after month for as long as you have that loan. Don't wait for rates to get better. If they do, I will be here to tell you to refinance again. But if they don't, you will be doubly glad you acted now!
BOTTOM LINE: Lock in these rates for as much as you can and for as long as you can right now. If your current loan has less than 20 years remaining, refinance now with a 15-year program. And try to refinance with no closing costs. Even though your rate may be slightly higher, you won't incur out of pocket expenses. If your current rate is anything over 4 percent, you should call several lenders today. If you need a referral to a reliable lender, go to my website at money99.com.