To Refinance or Not to Refinance a Home? That is the Question.

To Refinance or Not to Refinance a Home? That is the Question.
May 17, 2020 Prosperity Connection

In January of this year, the Federal Reserve lowered interest rates. By the last week of January, some lenders were offering mortgage rates at 3.2%.  These lower rates had some current homeowners to refinance their home loans. In February, refinance home loans made up about 48% of the loans processed for that month.

I know the idea of buying or refinancing a home during this time of uncertainty may seem a little strange or unlikely. However, if you are a homeowner making your monthly mortgage payment, you might think about taking advantage of the lower loan rates. Some questions you might want to think about are:

  • How much can I afford?
  • Will this refinance lower my monthly payment and how much will my monthly payment decrease.
  • Will refinancing help or hurt me in the long run? Just because the rate is lower does not always mean you will qualify.
  • What is my credit score? The higher the credit score is, the lower the interested rate.  We might also have to consider the high unemployment rate; lenders might have to require a higher credit score to qualify for a mortgage loan.
  • What types of mortgage loans are offering a lower rate? The type of mortgage loan and the length of the loan might determine if you will be saving money or paying a lower monthly payment.  As we all know, a longer loan term will have a lower monthly payment.  But, sometime we may want a shorter time to pay the loan off quicker and to pay less interest.  I would suggest asking a loan officer to show you the difference between a 15, 20, and 30-year mortgage.

The take away: Will refinancing my home be worth it in the long run? Will it help me overall financially?   If you feel that a refinance will be worth it, then go for it; if not, well, at least you have made a smart financial decision for you and your family.

Evette Baker, Director of Financial Capability