When Should Homeowners Refinance?
MINNEAPOLIS (WCCO) – Since November 2018, 30-year fixed average mortgage rates have dropped from 4.94% to 3.99%. According to Black Knight's Mortgage Monitor report, that means six million homeowners are now candidates for refinancing. That's up from four million in April.
So, when is it time to refinance? Good Question.
"We've hit a level of interest rates that I don't think anyone thought we were going to be at," says Casey Van Winkle, owner of First Class Mortgage.
He's been calling the mortgage clients he worked with six months ago to see if they're interested in refinancing. He says the first thing to consider is a homeowner's current interest rate. It should be at least one percentage point more than that mortgage holder can get now.
Second, figure out the value of the home. That way, homeowners can determine their equity. More equity makes it easier to refinance, especially if someone wants to take value out.
From there, Van Winkle says people should make sure it saves money in the long run. Refinancing costs money due to fees, taxes and an appraisal. It can be as much of 3 to 6% of the home's value.
Legally, the break-even point should be less than four years. Experts say people should be able to recoup the costs within two to three years.
Van Winkle says he recently worked on a $540,000 loan with closing costs of $6,000. After refinancing, the monthly savings were $350 with a break-even time of 22 months.
"It's a no-brainer for them, but it's not going to work for everybody," Van Winkle says. "If you think there's an opportunity, you should pick up the phone and talk with someone you trust."
