5 ways and reasons to refinance your mortgage

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Rates are still near all-time lows, which means mortgage refinancing remains a good deal for many.

Yes, you can save money by doing a simple refinance in which you swap a lower rate for your existing higher rate. But that’s just one way — and one reason — to refinance a home loan.

Trying to decide if it’s time to refi? These are five good reasons and types:

1. Mortgage refinance to change your rate and term.

2. Cash-out refinance.

3. Refinance to shorten the mortgage term.

4. Cash-in refinance.

5. Refinance to get rid of mortgage insurance.

Rate and term mortgage refinance

Rate and term refinances are the most common form of refinancing. When you get a rate and term refinance, you replace your mortgage with a loan sporting a lower interest rate, and for roughly the same term. The term is the payoff period: A 30-year mortgage has a 30-year term.

Cash-out refinance

Cash-out refis were popular during the housing boom and contributed to the bust. When you get a cash-out refi, you borrow more money than the outstanding mortgage balance and you receive the difference in cash.

For example, you might have borrowed $225,000 a few years ago for your home, and you’ve been making payments faithfully and now owe $200,000. Meanwhile, your home’s value has swelled and can be appraised at $300,000. In this case, you can refinance for more than $200,000. In fact, you can borrow up to $240,000 without having to pay for mortgage insurance.

There are responsible ways to use a cash-out refi. You can use the money to pay off high-interest debt. Or you could use it for a home improvement: a swimming pool or solar panels.

Refinance to shorten the term

You got a 30-year mortgage three or five years ago, and you want to refinance. You don’t have to start over with a 30-year repayment period. You can ask to pay it off in a shorter time than that — 27 years, 25 years, 20 years or 15 years.  If your preferred payoff period is more than 20 years, you’ll probably have to get a 30-year mortgage and ask the lender to amortize it over your preferred, shorter period. Most lenders offer 15-year mortgages, which generally have lower interest rates than 30-year loans. A few lenders offer 20-year mortgages with slightly lower rates.

Cash-in refinance

In addition to the cash-out refinance, there’s such a thing as the cash-in refi. This happens when you have some money lying around and you spend it to pay off part of the old mortgage. Then the new, refinanced loan is for less than the old loan.

Cash-in refinances used to be more popular. But in today’s low-interest environment, any spare cash would best be used to invest in something with a higher return than your mortgage interest rate.

Divorces can force a variety of the cash-in refi, in which one former spouse pays off a portion of the outstanding loan balance and the remaining spouse refinances the loan in her or his own name.

Refinance to get rid of mortgage insurance

You made a down payment of less than 20 percent, and you’ve been saddled with mortgage insurance payments, aka PMI, as a result. But in the years since you got the mortgage, you paid down some of the debt and, more important, the value of your house went up a lot. If the outstanding loan amount is less than 80 percent of the home’s appraised value, you might be able to refinance into a loan without private mortgage insurance.

This can be an especially valuable tactic if you have a mortgage insured by the Federal Housing Administration — also known as an FHA loan. With modern-day FHA loans, you can’t cancel the mortgage insurance — even when your loan-to-value ratio falls below 80 percent. The way to get rid of FHA mortgage insurance payments is to refinance (or to sell the house).

~Holden Lewis, Bankrate

Is it time to refinance again?!?

It’s a good time to check the rate on your home mortgage, because you might save money by refinancing. For that, American homeowners can thank British voters, central banks in Europe and Japan, and a global economy that just can’t get out of first gear.

The average interest rate on a 30-year fixed-rate mortgage was 3.49 percent Monday, which is down from 4.2 percent a year ago and 3.9 percent at the start of 2016 (the rates on 15-year fixed-rate mortgages and various forms of adjustable-rate loans are also down). This movement is being driven by shifts in the global bond markets.

There is even reason to think mortgage rates could fall further in the weeks ahead as banks start to pass more of the savings from low rates in the bond market through to customers — though would-be refinancers would have to be willing to bet that global markets won’t reverse themselves in the interim. Bond yields rose Tuesday, which suggests that some reversal may have already begun.

Using the rule of thumb that refinancing frequently makes sense when rates have fallen by a full percentage point, people who took out loans at the prevailing rate at various points in late 2013 and the first part of 2014 might see favorable economics for refinancing, as will those whose loan was first made anytime before mid-2010.

People with narrower gaps between their interest rate and those that prevail now might also consider refinancing. That makes sense particularly if they expect to remain in their current home for many years, thus allowing time for even modest monthly savings to accumulate enough to justify the one-time expenses tied to refinancing a loan.

Lower rates can make this a good time to refinance for people who want a different type of mortgage, like moving from a 30-year loan to a 15-year one to pay off the home faster.

For a first cut at exploring whether refinancing might make sense in your situation, use any of several online calculators, such as this one created by the housing site Zillow. A mortgage broker or banker can help determine the exact rate, eligibility and fees that would apply.

What no one can know is whether rates will pop back up or continue to drop. As much as mortgage rates have declined in 2016, and especially since Britain voted to leave the European Union on June 23, they actually haven’t declined as much as the long-term interest rates that prevail on the global bond market.

From the end of last year until Monday’s close, the interest rate on 10-year Treasury bonds had fallen 0.84 percentage points, while the average rate on 30-year fixed-rate mortgages was down only 0.41.

Essentially, banks have been able to keep much of the savings of falling global rates for themselves — the gap between those numbers, reflecting strong demand for loans and limited competition.

That gap between long-term rates on global markets and what banks charge their customers for a mortgage has spiked repeatedly in the last few years, as it has in the last month, but those spikes have inevitably been short-lived. Assuming the pattern holds, it would mean that mortgage rates will fall further in coming weeks, as competitive pressure takes hold and more banks pass along the low interest rates prevailing on the bond market to their customers.

That said, there’s no guarantee that will happen. Yes, there’s reason to think that banks will lower the premium they are charging for mortgages. But with Treasury yields at record-low levels, the same technical forces that have driven rates downward in the last few months could reverse. That means that even small improvements in the global economic outlook could cause a rapid rise in rates.

So if refinancing looks desirable now, you might save a little more on mortgage interest if you wait. But if you wait, your lucrative refinancing opportunity could evaporate. And if you have special powers to divine which direction rates are going next in this volatile year, every hedge fund manager on earth would pay handsomely if you would tell them.

Neil Irwin, New York Times

Run the numbers! Refinance calculator

Does Waiting to Buy Make Sense?

Whether you are a first time or a move-up buyer, there are two factors that will impact the amount of house you can afford in your price range: home prices & mortgage rates.

Here’s what the experts are predicting over the next twelve months for these two areas:

PRICES

Over 100 economists, real estate experts and investment & market strategists were recently polled as a part of the Home Price Expectation Survey. They were asked to project where home prices are headed. The average value appreciation projected over the next twelve-month period is approximately 4.4%.

MORTGAGE INTEREST RATES

In the latest Economic & Housing Market Outlook from Freddie Mac, they predict that the 30-year fixed mortgage rate will be 4.7% by this time next year. As of last week, the Freddie Mac rate was 3.69%.

What does this mean to you?

If you are a first-time buyer currently looking at a home priced at $250,000, this is what it could cost you on a monthly basis if you wait until next year to buy:

DATE               MORTGAGE        INTEREST RATE*        P&I**

Today                   $250,000                3.69%                      $1,149.29

2016, Qtr 2         $261,000                 4.7%                        $1,353.64

Difference in monthly payment                                          $204.35

If you are a move-up buyer currently looking at a home priced at $500,000, this is what it could cost you on a monthly basis if you wait a year to buy:

DATE               MORTGAGE        INTEREST RATE*        P&I**

Today                  $500,000                    3.69%                    $2,298.59

2016, Qtr 2        $522,000                     4.7%                      $2,707.29

Difference in monthly payment                                            $408.70

~KCM Blog