As you probably know, mortgage rates are at an all time low. These low rates have caused an influx of mortgage applications, especially from homeowners looking to refinance. In fact, according to the Mortgage Bankers Association, refinance applications have increased by an astounding 21 percent, matching levels not seen since January 2015. Financial analysts, however, predict that mortgage rates will increase in the near future, so buyers need to act fast if they want to lock in today’s rates. Here are eight reasons why you should consider refinancing today.

1. Reduced Monthly Payments: The first and most apparent reason to refinance is to reduce your monthly payments, which will ultimately reduce your total housing cost. The savings can be substantial, especially if you purchased your home when the market was at its peak or you have a more sizable loan; however, you don’t need to have a large loan to reap the benefits of refinancing! For example, if a homeowner with a $200,000 loan lowers their interest rate by one percent, they could save up to $40,000 over the life of their loan.  In addition, refinancing could save you a couple hundred dollars per month in what you pay to your mortgage, which would allow you to save more for costs that may be going up (gas, groceries, tuition).  If you had financed $200,000 at 5.5% interest, that is roughly a payment of $1,521 per month.  With the same math applied and a 4% interest rate, you would save roughly $181 per month, or have a monthly payment of $1,340.  That could save you and your family over $2,000 annually.
   
   Many homeowners are still hesitant to refinance because they fear it will take too long to offset the closing costs, so they won’t see the benefits of refinancing for a long time—this isn’t true! Rates have decreased so drastically that the large savings will offset the closing costs within a shorter period of time.
   
   
2. Converting a 30-Year Loan to a 15-Year Loan: If you think interest rates for 30-year mortgages are low, the rates for 15-year mortgages are even lower; this is because shorter loans are less risky for lenders. If you convert to a 15-year loan your monthly payments will be higher because you will be paying a larger amount of the principal every month; however, because 15-year loans have lower interest rates and you are only paying interest for half the amount of time, you will still save a considerable amount of money by choosing to refinance. For example, compare the total interest costs for a fixed-rate loan of $200,000 at 6% for 30 years with a fixed-rate loan at 5.5% for 15 years.

3. Changing Your Adjustable-Rate Mortgage To A Fixed-Rate Mortgage: Adjustable-rate mortgages offer homebuyers fixed interest rates for a specific amount of time. After the specified period has lapsed, your monthly payments will increase or decrease periodically in conjunction with the market. The length of the period depends on the terms of your mortgage; they can range anywhere from 1 month to 15 years. Many homeowners are uncomfortable with the uncertainty that this brings. In this case, you should consider switching to a fixed-rate mortgage through which monthly payments are consistent. It’s a good idea to switch to a fixed-rate mortgage as soon as possible because interest rates are predicted to rise in only a few short months. Converting now will allow you to lock in a lower rate and pay less—both monthly and in total!

4. Retiring A HELOC Or Second Mortgage: Many homeowners are taking advantage of low interest rates by consolidating variable-rate and high-interest second mortgages into one low-rate loan. According to Freddie Mac, households have consolidated 20 billion dollars worth of second mortgages in the past year. Consolidation refinances are similar to traditional ones, the only difference being you must increase the amount of your new loan to encompass both mortgages. The same holds true if you wish to consolidate your home equity line of credit (HELOC). Your new loan pays off and closes your second mortgage or line of credit, and you now only need to make one low payment each month.

5. Consolidating Debt With a Cash-Out Refinance: Home values in the US are steadily increasing. In many regions, property values have increased by 20 to 30 percent over the past couple of years. Homeowners are now considering cash-out refinances, which will allow them to use their home equity to cover other important bills and expenses while locking in a lower interest rate. Cash-out refinances generally have slightly higher interest rates than simple rate-and-term refinances but the savings can still be substantial. This makes them an excellent option for refinancers looking to free up some cash immediately. 

6. Getting Rid of Mortgage Insurance: Homeowners are required to carry mortgage insurance until they hold 20% of their home equity. Due to rising home values, however, many homeowners simply need to refinance to remove their mortgage insurance. First, you need to check your home’s estimated current value with a real estate agent or mortgage specialist. If you have close to 20% equity you should apply for a new loan. The lender will then request a new home appraisal, which is will tell you your home’s actual value. If you have enough equity, you will be able to refinance into a new loan with a lower rate and no mortgage insurance.

7. Refinance an FHA Loan With No Appraisal and No Paystubs: Homeowners with FHA loans now have an easy and profitable way to refinance their mortgage. The FHA streamline refinance is an FHA-to-FHA refinance that enables borrowers to reduce their monthly payments without a new home appraisal. This permits borrowers to refinance even if they owe more than their home is worth. In addition, there is very little documentation associated with this type of refinance, as homeowners are not required to produce paystubs, W2s or tax returns, which greatly reduces the timeline.

8. Use The VA IRRRL Program For Streamlined Refinancing: An Interest Rate Reduction Refinancing Loan (IRRRL) is the easiest type of refinance to qualify for because it requires no income verification, no bank statements, no appraisal and no mortgage insurance. VA loan holders should take advantage of this opportunity to refinance because mortgage rates are at an all time low and this simple process will allow them to save greatly on their monthly payments.

If you are looking to take advantage of currently low mortgage rates before they increase, or want to learn more about the refinance process, contact one of our loan officers today!