5 Tips for Homeowners Thinking of Refinancing Their Mortgage in 2021
Mortgage Broker
Henry Wilkes Mortgage Broker
Published on February 26, 2021

5 Tips for Homeowners Thinking of Refinancing Their Mortgage in 2021

2020 was the year we were all hit with unimaginable and uncontrollable situations. Americans across the country had to learn how to reduce and review their debts and spending. In an attempt to control the controllable, homeowners and renters alike decided to start making more financially conscious decisions. Some adjusted their budgets, others found more financially sustainable practices for daily living, and some even made the move to living in more economically friendly cities and towns. This evaluation of budgeting also led many homeowners to decide to refinance their mortgages with hopes of saving money.

Refinancing your home is the process of replacing your current home loan with a new one to reduce your interest rate, paying off your home faster, and lowering your monthly payments. When you refinance, you need to apply and qualify for a new loan just how you originally had to meet lender requirements for your original mortgage. The reason why so many Americans rushed to refinance in 2020, and now coming into 2021, is because rates have been at historical lows, falling almost one full percentage point from an average of 3.86% to 2.92%.

Refinancing may be exactly what you need to achieve successful homeownership and better money management. On the other hand, it might be entirely unnecessary for your current situation. Today, I’m sharing 5 tips to keep in mind if you’re considering refinancing your home:

  1. Compare where you are now to where you want to be. Although it sounds simple, this first tip could be the deciding factor for whether or not you need to refinance. Do you picture your current home as your forever home? Is this a property you see yourself holding on to long term? It’s okay if you’ve only purchased a starter home as a way to save money and build equity. If you see yourself leaving or selling soon, then refinancing simply doesn’t make sense.

    When you refinance a mortgage, you swap out your existing loan for a new one, hoping to pay less each month. However, when refinancing a mortgage, you have to pay closing costs just like you did when you signed your original mortgage. These costs vary by lender, are usually not negotiable, and can be hefty, ranging from 3-6% of the loan amount. When you plan to be in the home long term, the benefits gained from the money saved far outweigh the closing costs endured. But if your current home is just a starter home, you won’t end up seeing huge savings from a refinance.If your current home is a property you plan to keep long-term, refinancing is worth it and you will see the impact of lowered interest rates and a shorter loan term. Refinancing might make the most sense for you if:

    1. You have an adjustable-rate mortgage.
    2. You have high-interest rates.
    3. The length of your mortgage is over 15 years.
  2. Think about how much you have already put into your mortgage. Before deciding to refinance, you should also think about the length left on your mortgage and how much you have already paid in. These two factors will determine whether or not you should refinance now and how much you could be saving. These factors also will determine how you will approach the refinancing process.If you’ve already paid off most of your mortgage, it wouldn’t make much sense to refinance now. Between closing costs and a slight difference in interest rates and your monthly payment, you’re not going to be looking at huge savings. However, let’s say you are on a 20-year mortgage loan, and four years in, you decide to refinance. You would need to ask the lender to match your remaining loan term so that you don’t end up taking even longer to pay off your house and paying more interest over the long run. So if you have 16 years left on your loan, when you refinance you don’t want to reset it to a 30, you need to have it reset to a 15 or a 10-year loan.With rates this low, you could save thousands of dollars by lowering your term a few years and getting a new rate. We were able to help a recent client refinance from a 15-year loan to a 10-year loan, lowering their interest rate from 2.75% to 1.875%! We shaved off almost an entire point and four years, saving them over $100,000. This is the type of impact that makes me feel so blessed to be in this industry.

    To receive options based on your unique criteria and scenario, check out our refinancing calculator to get a FREE quote: https://californiamilitaryloans.com/refinance

  3. Interest rates. The most popular reason people consider refinancing is that their current interest rates are way too high. Refinancing is a smart financial move if you find yourself with a higher interest rate compared to the current market rate.The lowest interest rates in years have been a hidden blessing in 2020. This means it is a time for growth. More and more people are qualifying for homes and refinancing. This is the best time to be a smart homeowner and save yourself money where possible. For example, one of our clients was a couple that was getting divorced pre-pandemic. With the way the rates were before, they weren’t going to qualify for one of them to stay with their current house once separated. But since rates were lowered, they were able to afford it on one of their incomes. This was a direct result of low-interest rates in 2020.

    Interest rates won’t stay this low forever, in fact, experts say they won’t even stay this low until the end of 2021. Now is the perfect time to take advantage of this hidden blessing and consider refinancing or even real estate investing to start building your portfolio before rates go up again.

  4. Know your equity to be able to cash out. Equity is a powerful financial tool and one of the biggest benefits of being a homeowner. Your home equity is the difference between what you owe on your mortgage and what your home is currently worth. For example, if you owe $150,000 on your mortgage loan and your home is worth $250,000, you have $100,000 of equity in your home. You can increase your equity by paying down your mortgage and the equity will also increase if the value of your home increases.If you have accumulated enough equity in your home, you can tap into that equity for a cash-out refinance. A cash-out refinance is when you refinance the balance on your existing loan with a larger loan, so that you receive cash back from the lender in addition to paying off the old loan. The benefits of this include acquiring a large loan at a relatively low rate. This loan can be used for home improvement projects, planning for retirement, purchasing a vacation home, and investing in property. Again, with interest rates at record lows now is the best time to start investing in real estate.
  5. Make moves with the industry. You may have heard the term “trade with the trend.” The same principle applies to mortgage loans. Look at the state of the industry: rates are low, suburbs are in demand, and more people are looking for real estate investment opportunities. So if you’re looking to refinance, speed up your timeline.After refinancing your personal property and saving yourself money, make plans for future purchases of property. Take advantage of the market and look for ways to invest in real estate to start building wealth. When the time comes, it will be advantageous to have the lowest carry costs possible to ensure you will easily qualify for future loans.My biggest piece of advice would be to layout your numbers and look at how much you would be saving by refinancing to see if it’s worth it for your specific situation.There are many ways refinance can help homeowners. A lower interest rate and a shorter mortgage term could result in a massive amount of savings that could help pay for retirement, your child’s college tuition, help pay off your debt, and more! You might also be able to pull cash out of the equity you’ve built and receive a safety net of money. Again, this can be used for multiple purposes, especially for those looking to invest in real estate.

    Here at Wilkes Mortgage Group, we are determined to help our clients save money on their mortgage so they can succeed as homeowners. Choosing a refinance product that matches your goals and making sure you get the best rate for your given scenario is what we’re here for! We break down the home refinance process so that it is digestible and manageable, and we will help you see a clear difference between loan programs, allowing you to choose the right one for you whether this is your first refinance or 7th.

    We have all the tools and expertise that will help guide you along the way, starting with a FREE refinance analysis request.

Mortgage Broker
Henry Wilkes Mortgage Broker
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(818) 304-7584