Refinancing?

    Refinancing?

    Nov 27, 2017

    With the financial crisis of 2008 came historically low interest rates which left people flocking to the banks to get their homes refinanced. If you're considering refinancing your home, don't worry, rates are still at an all time low. However, before you commit to anything, let's debunk some of the myths surrounding refinancing. By separating fact from fiction, you'll be able decide if refinancing is right for you.

    • Your housing costs will be less 

    While paying a lower interest rate on your mortgage reduces your monthly housing outlay, thereby saving you money in the short term, you might end up paying more money in the long term if you’re not careful. If you refinance to a loan with a longer term, you’ll end up paying additional interest payments because you increased the length of your mortgage. To avoid this, make sure you pick a refinance option that keep your term length the same (or even better, reduces it)!

    • You have to have 20% equity 

    A misconception due to the 2008 housing crisis, the “rule” about having to have 20% equity in your home to refinance is more fiction than fact. Yes, lenders want you to have at least 20% equity in your home, but many lenders (including the Federal Housing Authority and Department of Veteran Affairs) can offer you refinance options even if you’re below the threshold. Furthermore, the federal Home Affordable Refinance Program was specifically created for helping homeowners with little to know equity.

    • Your bank will offer you the best rate 

    When it comes to mortgage rates, your bank won’t be handing out special rates just because you’re a loyal customer. If you want to find the best rate, either inquire with a mortgage broker or check in with several lenders, including credit unions and online and stand-alone banks. 

    • If you weren’t eligible before, you can’t refinance now 

    Thanks to changes in the Housing Affordable Refinance Program in 2011, it is easier than ever to refinance your home. The program’s new model allows for unlimited loan-to-value on a refinanced home, meaning that homeowners that weren’t eligible for refinancing in the past now qualify. 

    • Refinancing is expensive and usually not worth it 

    

    Refinancing isn’t for everyone, and if not done right can certainly cause unnecessary financial strain. There are a lot of fees associated with refinancing (including mortgage broker fees, credit reports, home appraisals, and title insurance), which is why you want to make sure your refinancing plan will actually end up saving you money in the long run. Experts suggest you look for interest rates at least 1.5 to 2 percentage points lower than your current rate when considering refinancing. Also, if you’re planning on moving sooner than later, refinancing might not be right for you, as you’ll probably end up paying the fees without reaping the benefits of the low interest rates.