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With mortgage rates at historic lows, now may be a good time to consider refinancing your mortgage.  Just a small interest rate reduction could translate into valuable potential savings over the term of your loan.  Remember to consider closing costs (e.g., title insurance, appraisal fees, filing fees), the time remaining on the loan and how long you expect to stay in the home when deciding whether it makes sense for you to refinance.   For borrowers with strong credit, assets and income, we have seen rates on conforming loans as low as 2.75% for a 30-year mortgage and 2.375% for a 15-year mortgage.  While every situation is different, rates in the jumbo mortgage market are generally higher and will vary significantly depending on the lender.  You should expect the rate on a 30-year jumbo mortgage to be closer to 3.5% although we have seen rates as low as 3.0%.   

When receiving a quote from a banker or mortgage broker, make sure to ask if the rate includes points.  Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate.  Essentially, you pay some interest up front in exchange for a lower interest rate over the life of your loan.  In general, the longer you plan to own the home, the more points help you save on interest over the life of the loan.   The real rate you are paying – the annual percentage rate, or APR – will reflect these points and will be higher than the rate you are quoted.

A few other factors to be aware of:

Processing times.  Given the number of homeowners looking to refinance, the processing time has increased dramatically.  Mortgage originations are given priority because of time constraints around home closing.   A refinancing that typically took 30 days can now take upwards of 90 days.

Stricter qualifications.  As a result of the coronavirus, many banks and lenders are imposing stricter qualification for mortgage loans including raising minimum credit scores, requiring higher down payments and triple-checking employment status.

Interest deduction rules.  While the Tax Cuts and Jobs Act reduced the mortgage interest deduction loan limit from $1million to $750k for loans made starting in 2019, if you refinance a loan made before that time your loan will be grandfathered.  In other words, you can refinance and deduct interest on the original remaining balance up to $1 million.

Is your current loan with a regional bank?  In some circumstances, if your mortgage is held with a small local or regional bank, they may be willing to reduce the current rate without the normal closing costs.  It’s a good idea to check with these lenders while you shop the rates.

Please let us know if you would like to discuss if refinancing is appropriate for you.

 

The content contained in this article represents the opinions and viewpoints of Cardan Capital Partners only. It is meant for educational purposes and not meant for consumer trading decisions. All expressions of opinion are as of its publishing date and are subject to change. There is no assurance that any of the trends mentioned will continue in the future. Market performance cannot be predicted, so nothing in our commentaries is ever meant to provide any kind of guarantee of future results.

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