Every cloud has a silver lining, and one possible silver lining of the COVID-19 pandemic is its effect on mortgage rates. In the grand scheme of things—schools closing, businesses shutting down, unemployment skyrocketing—mortgage rates falling might seem a small perk, but a rock-bottom interest rate could mean big savings, should you refinance.
So… If Mortgage Rates Are Down, Should You Refinance?
If you’re looking at these low interest rates with a calculating eye, know that you’re not alone. In early March, mortgage refinancing applications jumped 79%, according to the Mortgage Bankers Association. There’s definitely some merit to refinancing, but it might not be the right move for every owner.
So, bottom line. Should you refinance?
The benefits of refinancing
If you’re trading a higher interest rate for a lower one, refinancing can definitely have some big monetary payoffs. Decreasing your interest rate doesn’t just mean decreasing your monthly costs—it means lowering the overall cost of your home, potentially saving you tens of thousands of dollars over the duration of your loan.
Refinancing also gives you some other options—like selecting a more manageable or aggressive mortgage term, or switching from an adjustable rate loan to a fixed-rate loan.
The disadvantages of refinancing
Before you start comparing your loan rate to current rates, know that there are some downsides to refinancing, too. For example, you will pay probably several thousand dollars in closing costs—just like with your original loan. If you don’t plan to stay in your home long enough to recoup those upfront costs, it might not make sense to refinance.
Keep in mind that at this point in time, you may also find yourself with a lengthy processing or waiting period, since there’s been a drastic increase in refinancing applications.
The cash-out refinance
The cash-out refinance might seem an appealing option, particularly for those out of work and in need of some upfront money. A cash-out refinance allows you to exchange your existing loan for a higher one, then pocket the difference.
It’s not a terrible idea, especially if you need cash to pay bills AND can get a better interest rate, but you do have to proceed with caution. Because you’re increasing your overall loan amount, you may also be increasing your monthly mortgage payments, rather than lowering them.
The bottom line
As with pretty much any real estate scenario, there really isn’t a right answer as to whether or not you should refinance. Real estate is very circumstantial, and this is no exception. For some, refinancing is a great option. For others, not so much. It helps to understand your short and long term goals, and enlisting the help of a professional never hurts, either.
Want More Information About Refinancing & Real Estate?
Searching for more information about how the current health crisis might be affecting your real estate goals? We can help! Please don’t hesitate to reach out to Glazers Realtors with any questions or concerns.