When to Refinance?

Should you Refinance Your Home?!
That depends.

There are three main times when it may make sense to refinance.
1. The first is if the value of your home goes up,
2. The second is if your debts have gone up
3. The last reason is if interest rates are lower than where you're currently at.

Let's go over each reason in more detail so you can better determine if it makes sense for you to refinance.

If Values Go Up

One of the best reasons to own real estate is that it's considered an appreciating asset. This means over time it typically goes up in value. Lately, it's been going up a lot!

When this value goes up there are some advantages that take place for you as the borrower.

One benefit is if you put less than 20% down on the mortgage you may be able to now refinance to get rid of the mortgage insurance. Mortgage insurance can cost a good amount of money and if you now have 20% equity it can save you that expense.

Another benefit is pulling out cash. If you now have a lot of equity in the home and want to use some of it, we can do what's called a cash-out refinance for you. In that scenario we can typically go to 80% of the value of your home. For example, if the home is worth, $400,000 we can do a new loan for $320,000. If you only owe $280,000 on the home then you can refinance and pull out that $40,000 in cash to do home projects, pay off debts or go to Vegas. There are no restrictions on what you do with the money. It's yours to do what you'd like.

Lastly, you can just leave the equity alone and not do anything. This will then sit until you eventually sell the home at which point you'll get the difference between what you owe on the home and what it's worth. A forced savings plan of sorts.

If Your Debts Go Up

We all like to buy nice things at times and occasionally we buy more than we should've. This then causes us to incur high interest debt which is often hard to escape from.
When your debts go up it may make a lot of sense to talk with us about your mortgage. Let me give you an example.

Let's say you bought your home 5 years ago for $350,000 and that you put $0 down when you bought it. Right now based on past appreciation rates that home should be worth around $475,000. That means you have about $125,000 in equity in the home of which about 55k is available to take out in cash (assuming 80% of 475k minus a mortgage of $325k).

Let's then say you have you have the following debts:
If you were to pull out the $55,000 in cash to pay them off that would save you about $1206 a month in monthly debt payments, which is a lot of money!

Some people will then say that they don't want to take their 5-year car loan and put it into a 30-year mortgage loan. I totally get that, but let's say instead of pocketing that $1206 a month you decide to then take that money and make extra payments on your mortgage. If you were to do this you would then have your home paid off along with those debts we mentioned in 13 years, 11 months, which is far sooner than 30 years.

You can do a hybrid of pocketing some of the money and paying extra on principal which will also help you.

The point I'm trying to make is to look at your debts as a whole and what you're trying to do is pay the least amount of interest on them all and refinancing your home to pull out cash may be a good option to consider.

Click this form too see in greater detail the assumptions I used to run this scenario. If you want me to run a specific scenario for your situation, just let me know.

If Interest Rates Fall

Interest rates can rise or fall a lot in a single day. They are at times as volatile as the stock market. For the past few decades they have been on a downward trend and we hope they stay going that direction. For that reason let's talk about when we should refinance if rates were to be lower than when you bought your home.

A question I get frequently asked is when does it makes sense to refinance. Is it if rates fall .25%, .50% or perhaps if they fall a full 1%?! When is it time to refinance if rates fall? The best answer to this is it depends on the break-even point of the costs vs the savings AND if you think you'll keep the LOAN for that long.

Let me explain.
Let's assume you bought a home for $400,000 at a 4% interest rate and when you bought it you put 20% down, so your loan amount was $320,000. Let's then say rates fall to 3.5%. If you were to refinance you could save about $91 a month. Now let's say the costs to refinance to that rate were $5,000. That would mean it will take you about 54 months or 4.5 years to recoup those costs. I figured that out by taking $5000 divided by $91.

So if you think you'll keep that loan for more than 4.5 years then it's worth it, if you think you'll move, payoff or refinance that loan before that time then I wouldn't do it.
In my opinion, it's all about that break-even point and when you'll recoup your costs. When someone contacts us about refinancing, we'll typically give them multiple rates and costs so they can figure out what makes the most sense for their situation. If you think you may move in a year, but still want to enjoy low rates, we may suggest a no cost refinance. This is nice because you can refinance, pay no costs and enjoy that lower rate for the next year.

Another time interest rates fall is when you may be considering a lower term loan. For example, normally 30-year rates are about .5% higher than 15-year rates. So switching to a 15 year from a 30 year would save you a lot of interest. The downside, of course, is the higher payment, but the majority of that payment is now going towards principal. My opinion is if you can afford a 15-year payment it's always better in the long run.

There are many variables that go into your specific interest rate, but I've included a live graphic of Today's Mortgage Rates so you can see a good ballpark of where interest rates are right now.

If your value has gone up or your debts have gone up or you can see that interest rates are lower than where you're currently at and you want to look at refinancing, then reach out to us by calling 801-228-0937 or fill out the form below.

  • Today's Mortgage Rates Today's Mortgage Rates as of 6/24/2024

  • Loan Program
  • 30 Year Fixed
  • 15 Year Fixed
  • 30 Year Fixed Investment
  • 30 Year Fixed FHA/VA
  • 30 Year Fixed Jumbo

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