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Is Now a Good Time to Refinance My Home?

With interest rates hitting all-time lows over the past few weeks, many homeowners are opting to refinance. To decide if refinancing your home is the best option for you and your family, start by asking yourself these questions:

Why do you want to refinance?

There are many reasons to refinance, but here are three of the most common ones:

1. Lower Your Interest Rate and Payment: This is the most popular reason. Is your current interest rate higher than what’s available today? If so, it might be worth seeing if you can take advantage of the current lower rates.

2. Shorten the Term of Your Loan: If you have a 30-year loan, it may be advantageous to change it to a 15 or 20-year loan to pay off your mortgage sooner rather than later.

3. Cash-Out Refinance: You might have enough equity to cash out and invest in something else, like your children’s education, a business venture, an investment property, or simply to increase your cash reserve.

Once you know why you might want to refinance, ask yourself the next question:

How much is it going to cost?

There are fees and closing costs involved in refinancing, and The Lenders Network explains:

As an example, let’s say your mortgage has a balance of $200,000. If you were to refinance that loan into a new loan, total closing costs would run between 2%-4% of the loan amount. You can expect to pay between $4,000 to $8,000 to refinance this loan.”

They also explain that there are options for no-cost refinance loans, but be on the lookout:

“A no-cost refinance loan is when the lender pays the closing costs for the borrower. However, you should be aware that the lender makes up this money from other aspects of the mortgage. Usually charging a slightly higher interest rate so they can make the money back.”

Keep in mind that, given the current market conditions and how favorable they are for refinancing, it can take a little longer to execute the process today. This is because many other homeowners are going this route as well. As Todd Teta, Chief Officer at ATTOM Data Solutions notes about recent mortgage activity

“Refinancing largely drove the trend, with more than twice as many homeowners trading in higher-interest mortgages for cheaper ones than in the same period of 2018.”

Clearly, refinancing has been on the rise lately. If you’re comfortable with the up-front cost and a potential waiting period due to the high volume of requests, then ask yourself one more question:

Is it worth it?

To answer this one, do the math. Will it help you save money? How much longer do you need to own your home to break even? Will your current home meet your needs down the road? If you plan to stay for a few years, then maybe refinancing is your best move.

If, however, your current home doesn’t fulfill your needs for the next few years, you might want to consider using your equity for a down payment on a new home instead. You’ll still get a lower interest rate than the one you have on your current house, and with the equity you’ve already built, you can finally purchase the home you’ve been waiting for.

Bottom Line

Today, more than ever, it’s important to start working with a trusted real estate advisor. Whether you connect by phone or video chat, a real estate professional can help you understand how to safely navigate the housing market so that you can prioritize the health of your family without having to bring your plans to a standstill. Whether you’re looking to refinance, buy, or sell, a trusted advisor knows the best protocol as well as the optimal resources and lenders to help you through the process in this fast-paced world that’s changing every day.

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This is Not 2008 All Over Again: The Mortgage Lending Factor

Some are afraid the real estate market may be looking a lot like it did prior to the housing crash in 2008. One of the factors they’re pointing at is the availability of mortgage money. Recent articles about the availability of low-down payment loans and down payment assistance programs are causing concern that we’re returning to the bad habits of a decade ago. Let’s alleviate the fears about the current mortgage market.

The Mortgage Bankers’ Association releases an index several times a year titled: The Mortgage Credit Availability Index (MCAI). According to their website:

“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is…a summary measure which indicates the availability of mortgage credit at a point in time.”

Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available the mortgage credit.

This is Not 2008 All Over Again: The Mortgage Lending Factor | MyKCM

Here is a graph of the MCAI dating back to 2004, when the data first became available:As we can see, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI (to below 100), as mortgage money became almost impossible to secure.

Thankfully, lending standards have eased since. The index, however, is still below 200, which is half of what it was before things got out of control.

Bottom Line

It is easier to get a mortgage today than it was immediately after the market crash, but it is still difficult. The difference in 2006? At that time, it was difficult not to get a mortgage.

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Is Mortgage Debt out of Control?

The housing crisis of the last decade was partially caused by unhealthy levels of mortgage debt. Homeowners were using their homes as ATMs by refinancing and swapping their equity for cash.

When prices started to fall, many homeowners found themselves in a negative equity situation (where their mortgage was higher than the value of their home). As a result, they walked away. This caused prices to fall even further.

Headlines are again talking about record levels of mortgage debt, making the comparison to the challenges that preceded the housing crash. However, cumulative debt is not an important data point. If we look at the debt as a percentage of disposable personal income, we are at an all-time low.

Is Mortgage Debt out of Control? | MyKCM

Here’s a visual representation of mortgage debt as a percent of income:Furthermore, according to a new report from ATTOM Data Solutions, more than 1-in-4 homes with a mortgage have at least 50% equity. The report explains:

“[O]ver 14.5 million U.S. properties were equity rich — where the combined estimated amount of loans secured by the property was 50 percent or less of the property’s estimated market value — up by more than 834,000 from a year ago to a new high as far back as data is available, Q4 2013.”

Bottom Line

Unlike 2008, homeowners have a comfortable level of mortgage debt and are sitting on massive amounts of home equity. They will not be walking away from their homes if the housing market begins to soften.