Refinance Mortgage: Mortgage Interest Rates
Are you in search of an FHA streamline refinance and its no cash out offer? Do you want to learn about rates, whether it is a second home mortgage or a jumbo refinance? Find out more about the average rates from 10 to 30 year mortgage in this article.
Interest rates can play a major role in a borrower’s decision to apply for a loan. Whether it is a VA refinance or an FHA streamline refinance or other types of mortgage loans, rates are important. But interest rates alone should not be the deciding factor in your refinancing plans.
Along with other vital factors, your financial standing is a big consideration. The important starting point is to understand what refinancing is and the factors affecting it.
Refinancing Mortgage: Is it an expensive choice?
In choosing to refinance, your mortgage falls primarily on if it’s worth it or not. You ask questions like why do you need to refinance in the first place? Is it a no-cash refinance you are looking for? What rates can you consider when you refinance your mortgage, from second home to jumbo loan?
Refinancing rates historically fall between 3 to 6 percent. The rates depend on the lenders and the mortgage program. And you can reduce them through several cost-saving tips. Read more about these in the section entitled, “How to Get the Most Out of Refinancing Mortgages“.
Is refinancing worth it? The keyword in answering this question is “worth”. What would make this decision worth it for you? And the answer is in weighing the risks and benefits of refinancing your mortgage. When you refinance your 30 year mortgage on average rates, will it be worth your while?
Basics of Refinancing
Refinancing refers to getting a mortgage again after processing a previous one. This plays an important role in deciding what to do and what process to follow. Many refinance their loans to lower interest rates. Some do it to pay off the existing loan balance. While others use the cash, they get from refinancing to improve and renovate their homes.
FHA streamline refinance is a good example of this. For FHA homeowners, the program offers the chance for lower MIP. A partial refund is also possible with the program. Learn more about FHA streamline refinance here and here.
Many borrowers refinance their mortgages because of rates. Rates change depending on many factors. Once they lower, it is a good consideration to refinance. Get the facts in the next section. Check with an experienced Real Mortgage Consultant at Winner’s Mortgage if this is the best path for you. The choice is as clear as crystal.
Reasons Why It Will Be Worth Your While
Mortgage refinancing aims to offer borrowers a chance to have a better financial situation. Your 30 year mortgage can be reduced from its average rates. In the process of weighing how worth it refinancing can be, here are the reasons:
- Lower Your Interest Rate
- Lower Your Monthly Payment
- Switch from Adjustable Rate Mortgage to Fixed Rate Mortgage
- Take Out Cash of Your Home
- Shorten the Length of Your Mortgage
One of these reasons can be the factor of how refinancing can be worth your while. Consider these elements, as well as other costs included in the process. Estimate probable costs and take note of the break-even point.
Whether you apply for an FHA streamline refinance or no cash out refinances, see if it’s worth it.
What do you need to pay for with mortgage refinancing?
The second you deal with home mortgage rates, you also deal with the fees for the process. When you apply for refinancing, it requires payment for specific charges. Some of these are:
- Application Fee – refers to the charge covering the processing of the loan request
- Review Fees – refers to legal fees for services rendered in possible settlements related to the loan
- Title Search Fees & Title Insurance – refers to the payment for the policy issued by the title company and the insurance that comes with it. It also includes fees for reviewing property ownership and corresponding public records.
- Origination Fee – refers to payment for the preparation and evaluation of the mortgage loan conducted by the lender
Make sure to consider these possible fees too in addition to the rates and monthly payments.
Understanding Rates vs. Term
Understanding the difference between rates and terms is vital in applying for mortgages. For example, average rates for a 30 year mortgage are dependent on several factors. But the rates refer to the additional payment you are responsible for on top of the loan amount. The term on the other hand refers to 30 years of payment required. Both rates and terms can be changed using refinancing.
Refinancing can help lower your interest rates or lengthen your loan term. This depends on the circumstance, loan program, and market offers. There is a right time when you streamline refinance your loans like VA or FHA. This can be a big advantage depending on the situation.
Lowering Interest Rate
Refinancing to lower your interest rate is a no cash out refinance. When you get a second mortgage for your home, one of the best reasons to do so is lower rates. This will also lead to lower monthly payments.
In refinancing to get a lower interest rate for your existing loan, you can save around 1 to 2 percent from it. This can help you have better credit standing and better payment options. If you reduce the average rates for a 30 year mortgage, you can save a significant amount of dollars.
Converting an ARM to Fixed-rate Mortgage
When you refinance for its rates, you need to consider the type of loan it is, whether it is a jumbo, VA, or other types of loan. With adjustable-rate mortgages (ARM), periodic changes in rates can be unpredictable. There are cases where the adjusted rates are higher than other mortgages. And this can be a big disadvantage for borrowers.
Fixed-rate mortgages have predictable rates due to their fixed arrangement. With this loan type, there are no surprises when it comes to rating changes. Compared to ARM, you know what to pay in the next coming months until the loan is fully paid.
The strategy to lower your interest rates depends on the right timing. An ARM usually starts at a lower interest rate but has the tendency to increase in the years to come. Fixed-rate mortgages start and end with the same interest rate. The average rates for a 30 year mortgage are fixed in this case.
When you convert to a fixed-rate mortgage, you get more predictable interest rates. The best time to convert to a fixed-rate mortgage is when the interest rates for Adjustable-rate mortgages (ARM) are increasing. The rates can go up along the way for ARM that converting to fixed-rate will help. This is where the type of mortgage will matter.
If you feel like the refinance rates for your ARM are already jumbo in amount, converting might be a good choice.
Improved Credit Score Qualifying for Better Interest Rates
With credit score improved, applying for lower interest rates is also possible. You can get a second home mortgage with lower rates when you qualify for them. If you got a high-interest mortgage due to bad credit, you can apply for a lower interest once it has improved. This is one of the best times to get a refinance.
Shortening or Lengthening Loan Term
Refinancing is also a way for borrowers to either shorten or lengthen their loan terms. Whether you need to shorten or lengthen your loan term is based on your needs and situations.
Lengthening Your Loan Term
If you want to streamline refinance your FHA loan to lengthen its term, you can do so. In case you want to lower your monthly payments, lengthening your loan term is the solution. Whether you need the cash for emergencies or for other expenses, this is a good method to consider.
Choosing to take out a second home mortgage with similar rates to lengthen the term will result in reduced monthly payments. This method will also be a good option if you are having a hard time making payments.
Lengthening the loan term means more interest will need to be paid over the life of the loan. If possible, paying less interest will always be better. If you choose this method, there needs to be a compelling reason to do so. A dependable Real Mortgage Consultant would be critical to help determine the right strategy.
Shortening Your Loan Term
Another way to change your loan term is by shortening it. Shortening your loan term increases your monthly payments. This cash out or no cash out refinance method allows borrowers to pay less interest. It also means that they get to pay their own home quicker, taking out the interest you will pay if the term is longer.
With a 30 year mortgage, the average rates can be reduced when shortening to 15 years. The monthly payments may be bigger but the interest rates, in the long run, are less.
Factors Causing Changes in Mortgage Rates
Mortgage rates change by the minute, hourly, and daily because of several factors. The two types of factors that affect these changes are controllable and uncontrollable. These factors either increase or decrease the offered mortgage rates.
Controllable factors refer to the mortgage rate changes you can do something about. Before applying for a loan, preparing for it through your DTI ratio and credit score is a good move. In this case, lenders will have the prerogative to increase or lower the rate.
DTI (Debt-to-Income) Ratio
In establishing your financial standing, your DTI (Debt-to-income) ratio is an important factor. The DTI ratio refers to the sum of all monthly loan payments over the gross monthly income. Lenders take notice of this ratio to assess the possibility of default.
A higher DTI ratio means a higher possibility of a payment default. Lenders are inclined to offer a higher interest rate in this case. And a low DTI ratio means a low possibility of default, resulting in a lower interest rate.
Your credit score is another important factor that plays a role in the mortgage rates. Borrowers with 740 or higher credit scores have a chance of getting better rates. Those with low credit scores on the other hand will have some difficulty looking for good rates.
Manage your credit score early on before applying for a mortgage. Like your DTI ratio, this will be a good preparation to have more options with low rates.
Besides the DTI ratio and credit score, uncontrollable factors are also dealt with. Affecting the change of mortgage rates, they are beyond your control. The right timing will be important for these factors.
The Federal Reserve
The Federal Reserve is not responsible for setting mortgage rates. Its monetary policy though plays a role in the changes in mortgage rates. When the Fed cuts or raises the federal fund’s rates for short term loans, it also affects mortgages in the process.
The action that the Fed makes leads to a chain effect in the economy. Mortgage rates and the fed rates are independent of each other. They are consistently relative to each other though.
Overall Strength of the Economy
The overall strength of the economy is another factor that affects mortgage rates. When the economic growth is clear, mortgage rates rise. On the contrary, when the economy slows down, the mortgage rates fall too.
Rising inflation comes with rising interest rates as the dollar loses its buying power. In the same manner, low inflation equates to low mortgage rates. This is how inflation can affect the rise or fall of mortgage rates.
Current Housing Market
Besides the economy in general, the current state of the housing market is also a factor. The supply and demand in the housing market affect the mortgage rates.
Investors often consider bonds when it benefits them the most in the economy. Considering bonds are safe investments, investors see the high benefit in them.
When more people invest in bonds, bond yields increase. A bond’s yield is affected by monetary policy and market price. When the price of bonds increases, its yield fall. Low-interest rates lead to an increase in bond prices and a decrease in bond yields. And this goes the other way around.
Mortgage rates can be affected by these controllable and uncontrollable factors. You can do something about the controllable factors. You can do this by being an excellent payer in all your loans and establishing a good financial history. Be in control of your DTI ratio and credit score.
The uncontrollable factors depend on many factors but their movements are somewhat interconnected. Look out for the chain reaction that could lead to low mortgage rates. Check the behavior of the market and the economy. Don’t settle for less and wait for the right timing.
While learning about these can help, your Real Mortgage Consultant can also guide you. Check with your accomplished consultant the best options tailored for your needs.
How to Use the Mortgage Refinance Calculator
If you are set on refinancing your mortgage, the next step is to work the numbers you have to deal with. Having jumbo rates when you refinance is not a good idea. Through a mortgage refinance calculator, you can know what to expect to pay. This includes the new loan amount and interest rate to consider.
A mortgage refinances calculator calculates your new payments and monthly savings. You can get an average of your 30 year mortgage payment, including the rates. This is when all estimated costs are included. Other factors that you can consider will be discussed in the next section.
In knowing what to expect, you get to anticipate your expenses. You can check out a free mortgage refinance calculator online here.
Factors to Consider Before Refinancing Your Mortgage
Do you want to streamline your FHA loan or get a no cash out refinance? Whatever it may be, make sure to consider these vital factors.
Refinancing points are equivalent to 1% of the loan amount. These points can bring down your interest rate and required monthly payments. In calculating refinance interest rates, even with a jumbo loan, it is a vital factor.
Points are optional fees that borrowers pay to lenders. If you plan to lower your interest rates and required monthly payments, this is the way to go. Include it in calculating the interest rates and your required monthly payments.
Private Mortgage Insurance
Private Mortgage Insurance or PMI is an assurance for lenders. Most borrowers paying less than 20% down payment are required to pay for PMI. Non-refundable, the PMI is included in your required monthly payments.
For a 30 year mortgage, the average payment includes rates, payment, and PMI. Once at least 20% of the loan amount is paid, you can stop paying for the PMI. This depends on the lender and the loan type though.
The break-even point is also an important factor when refinancing. To streamline refinance your FHA mortgage means knowing your break-even point. It is when your savings cover your refinancing costs. Make sure you can afford the expenses that come with the process.
Taxes are a vital consideration in your refinancing calculations. When you apply for a no cash out refinance, you can deduct it from your income tax bill. The tax deduction depends on the loan amount and interest.
Changes for the mortgage interest deduction were passed in 2017. Tax Cuts and Jobs Act Provisions change from $12,700 to $24,400 limit for married couples filing for 2020. Meanwhile, the new mortgage debt limit is at $750,000 for the interest deduction. Make sure to confirm any tax decisions with your tax advisor.
This is a good time to call Your Real Mortgage Consultant at Winner’s Mortgage for cold, hard facts. Get the help of an expert in figuring out how your refinance can affect your taxes.
Another factor to consider in refinancing is the closing costs. When you take out a second home mortgage, closing costs come second to rates to take into account.
Closing is the final step both in the mortgage and the refinance processes. You will sign a legal document detailing your responsibilities in the transaction. It includes your new required monthly payments for your refinance. It also details the transfer of a mortgage from your old lender to the new one.
With refinance, from FHA to jumbo loan, it is also important to note the rates and closing costs. Closing costs are the fees charged at the final stage of the process. Before even thinking about applying for a refinance, make sure to consider the closing costs.
There are mortgages without closing costs but they might also require high rates. This is the reason why it is relevant to learn more about them. Check out with Winner’s Mortgage and see what possible options you have.
The main goal of refinancing is to have better financial options. Refinance your 30 year mortgage for better average rates and monthly payments. You can also refinance it for a shorter or longer-term, depending on your needs. But make sure to consider these factors before deciding.
How to Get the Most Out of Refinancing Mortgages & Their Rates
When you get a no cash out refinance or streamline your FHA loan, try to get the most out of it. Remember to not just focus on rates but also on other factors affecting refinancing. This includes break-even points and PMI. Besides these factors, it is also a good move to learn how to maximize your benefits.
You can depend on Your Real Mortgage Consultant at Winner’s Mortgage to get the most out of refinancing. Another way to do so is by learning more about refinancing and the tricks you can use. Here are some ways you can benefit the most from refinancing.
Consider a Mortgage with Shorter Loan Term
If you are on the track of improving your financial standing, refinance to get your loan term shorter. Besides aiming for lower average rates, try to shorten your 30 year mortgage. It means higher required monthly payments but lower accrued rates in the long run.
If you want to get a second home mortgage for lower rates, this is one good way to do so. In shortening the loan term, you won’t have to pay for a year’s worth of interest rates. It might seem higher from the start since the monthly payments are higher. But you would only need to pay for it for a shorter period of time.
Get Professional Assistance with No-cost Mortgages
There is no such thing as free lunch. No-cost mortgages can be tempting but make sure to be guarded with them. If left unguarded, you might pay jumbo for a refinance more than just for its rates.
Refinancing mortgages without closing costs may mean that the fees are not upfront. Some lenders roll it into the loan and others even include it in the interest rate. Get the assistance of your Real Mortgage Consultant to determine if a no-cost mortgage makes sense. Get the help of the most respected in the industry with the right knowledge and expertise. It may not be the best option for you depending on the circumstances. In some situations, it is the right choice.
Get Your Best Refinance Rate and Lock It In
When you find your best refinance rate make sure to lock it in! If you found the best average rates for your 30 year mortgage, don’t let it get away. Some mortgage rates can change drastically in a short term. So, if you found the best rate for you, make sure to lock it in.
Know When the Right Time to Refinance Is
Refinancing can either help you save money or spend too much. Most borrowers streamline refinance their FHA and other mortgages to lower their rates. Others choose to refinance to convert from one loan type to another. These situations can be a good time to refinance.
Another time to get a no cash out refinance is when you’ve improved your credit standing. This is the time when you can get access to better rates. To continue your improvements, you can shorten your mortgage’s term. In doing so, you will set up your payments in a shorter period of time. And knowing when to refinance is a big financial decision.
Be Conscious of Mortgage Interest Rate Drops
Another financial decision you get to make is whether to refinance when the rate drops. When rates drop, it might be recommended to get a second home mortgage. This is the standard typical run-of-the-mill loan officer’s advice. At Winner’s Mortgage, the goal is to pay off all mortgages as soon as possible. If you need to get another mortgage, there must be a compelling need to do so.
When it comes to interest rates drop, learning about it from the news means it’s already too late. Refinance applications will have increased at this point. Lenders will have many applications to check resulting in a longer and costlier process.
What do you need to do? First, decide on your target interest rate. Whether you want to streamline refinance your jumbo or FHA loan, get your target rates set. Run the current rates through the refinance calculator and input your savings. Run different rates in the calculator until you get the target rate.
Determine Your Break-even Point
Every borrower will have a breakeven point and you should be able to determine it. If you have a 30 year mortgage, the average upfront costs without the rates should be calculated. Get this by dividing your closing costs with the monthly savings using the new interest rate. It will result in the number of months you need to pay to break-even in the refinance mortgage.
Besides the closing costs, you can also consider tax deductions in a no cash out refinance. List down your tax deductions and compute the amount to adjust accordingly. Any potential tax benefit will have a less possible impact due to the 2018 tax law change. Check with your tax advisor.
Know the Risks that Come with Refinancing
Refinancing needs to have the right time to benefit you. Second-home mortgages are great if made with lower rates and jumbo refinance can work if you can pay them back. And here are some of the major risks you should watch out for.
Possible Incurred Penalties
There are possible penalties from the lender when you pay down the existing loan. But only if there is a pre-payment penalty.
Hidden Charges and Fees
Another risk you have to look out for in refinancing is additional fees and charges. Some of these fees are rolled into the loan and you have to be conscious about them. If you have a 30 year mortgage with average rates, make sure to know your numbers. In this case, hidden charges will be visible to you.
To take out the risk in refinancing, make sure to know everything you can about the process. It will also be a big help to ask for the assistance of an expert to lead you. Visit Your fully-trained Real Mortgage Consultant at Winner’s Mortgage for help.
What to Ask Yourself before Refinancing Your Mortgage
For your queries on refinancing, here are the answers to some often asked questions. Get answers before you refinance your 30 year mortgage with less average rates out there.
How can refinancing benefit me?
Refinancing offers several benefits you can take advantage of. These benefits are dependent on your financial standing and goals. Some of the basic benefits you can enjoy are lower rates, shorter or longer-term, and faster equity growth.
You can also lower your required monthly payments through lower interest rates. Another thing you can do is consolidate existing debts into one new mortgage.
How much lower can the new interest rates be?
New interest rates will depend on several factors like credit score and payments. Lenders will also have a say in the new interest rate. Rates are too dependent on several factors to point out how much lower they can be.
Will my credit score affect my new refinance rates?
Credit scores are major factors that affect refinance rates. If you want a good rate, make sure you refinance with a good credit score too. While other factors can affect interest rates, expect high ones with a bad credit score.
Can I refinance my adjustable rate mortgage?
You can refinance your adjustable-rate mortgage but it depends on your intention. Why are you planning to refinance your loan? If you want to convert your adjustable-rate mortgage to a fixed-rate mortgage, yes you can. It could be refinanced even if not going to a fixed-rate loan. A fixed-rate loan could also be refinanced to an adjustable-rate if desired and for a good reason.
Should I refinance my mortgage?
The decision to refinance your mortgage is entirely yours. With all this information at hand, make an informed decision. Make sure to consider your current financial standing and your goal for refinancing in the first place.
Consider all the possible costs and expenses you have to carry in the process. And check your savings and finances if you are able to pay them. And the break-even point is very vital in answering this question. This goes along with the question, is it worth it?
Refinancing has many benefits you can explore at the right time and with the right goal in mind. If you are still unsure if this is the best path to go, ask the advice of an expert. Reach out to Your Real Mortgage Consultant at Winner’s Mortgage for help. You expect the best. We demand it!