As you may have seen recently, interest rates have dropped over the past few weeks. While this trend doesn’t affect our firm’s long-term investment approach, it does provide many of you with some important financial planning considerations, especially if you have a mortgage on your home (or homes).
Rock bottom interest rates make now a good time to consider refinancing. As an example, I bought a house back in December of 2015 and it looks like I may be able to refinance down by .50% already. Over a 30-year time frame, that can be a significant difference in interest payments.
To shed more light on the current mortgage environment, I checked in with Ryan Hall, Vice President of Paoli-based Excel Mortgage Corp, who has seen a lot of activity lately given the change in rates. Please don’t hesitate to contact me if you would like to review your current mortgage situation.
Patrick Runyen: Ryan, what’s been happening with U.S. interest rates since “Brexit”?
Ryan Hall: The initial impact of Brexit was a sharp decline in mortgage rates, between 0.25 percent and 0.5 percent, depending on the type of loan. All in all, rates are very attractive right now.
PR: What does that mean for home owners with mortgages?
RH: It has provided a great opportunity for homeowners to refinance at historically low rates. For some, it might simply mean replacing their old 30-year fixed mortgage with a new 30-year fixed mortgage in order to lower their monthly payments. For others, it’s an opportunity to refinance to a shorter term and shave years off their current loan. And for those who are looking to purchase a new home, today’s low rates may enable buyers to increase their price range.
PR: When should a homeowner consider refinancing?
RH: This depends on each individual homeowner’s situation and goals, but most people look to save at least a quarter of one-percent (0.25%) on their interest rate. Again, every homeowner has different circumstances and needs. Before beginning a refinancing application, have a discussion with a qualified advisor to make sure all of your options are considered given your unique situation.
PR: What is a typical out of pocket cost for refinancing?
RH: Actually, the majority of the refinances that I handle have NO out of pocket expense. This doesn’t mean there are no costs associated with refinancing. There are always certain items such as title insurance, appraisal, recording fees, etc. But, these costs can be offset through something called a “lender credit.” For instance, if a lender is offering a $300,000 30-year fixed loan at 3.5 percent [interest] with $3,500 in total costs, he or she might also offer 3.75 percent rate with a lender credit of $3,500 to cover all of those costs. The payment difference is about $45 per month, so it would take about 6-½ years to “break even” through the lower rate. Depending on the individual homeowner’s situation, it might make sense to take the higher rate with the lender credit than the lower rate without the lender credit.
Ryan Hall has been Vice President of Excel Mortgage Corp. in Paoli, PA since 2007. Excel Mortgage Corp. is an independent mortgage broker, licensed in PA, NJ, and DE.
Patrick D. Runyen, CPA/PFS, CFP® is an Independence Advisors Wealth Manager. Please don’t hesitate to email or call us if we can be of service. email@example.com | (610) 695-8070