Make the new year better with a smart mortgage strategy that takes advantage of today’s low-interest-rate environment.
By any measure, 2020 was one for the history books, and well… not in a good way. The effects of the COVID-19 pandemic in particular may mean that several of your most cherished resolutions for this year—perhaps jetting off on some Instagram-worthy international travel, seeing your friends more on the weekends, or meeting the partner of your dreams—have fallen by the wayside, at least for the time being. In fact, given the unpredictability and uncertainty of this year’s events, it’s been pretty hard to plan for much at all.
As we wave goodbye to another year, many are hopeful that a reliable coronavirus vaccine will restore some semblance of normalcy. But before you go making lofty plans for African safaris, grueling fitness bootcamps, or a jam-packed schedule of conference networking, it’s worth considering one very achievable and positive action you can take that may benefit you for years to come. Yep, that’s right: there has literally never been a better time to refinance your home’s mortgage. It’s easier than you think, thanks to new digital tools available to borrowers.
Why now is a great time to refinance
There are a variety of scenarios that make mortgage refinancing a smart idea, and current market conditions may positively factor into your cost-benefit analysis. Here’s why refinancing your home loan should be top of your 2021 list of resolutions:
Historically low interest rates
At the beginning of the pandemic-related shutdown, the Federal Reserve took immediate action to ease the most serious economic effects. This was done by lowering the prime interest rate to unprecedented low levels in order to incentivize borrowing and lending. Since then, mortgage and refinancing rates have continued to move even lower, meaning that you can refinance a home at rates in the neighborhood of two to three percent. For context: 30 years ago, in 1990, the annual average for a 30-year fixed rate mortgage was 10.13 percent. While you might be psyched for a Fresh Prince reboot and the return of Birkenstocks, double-digit mortgage rates are one ’90s trend you’re almost certainly not nostalgic for.
As you think about refinancing, remember: the better your credit rating, the more favorable your interest rate. If you are thinking of refinancing, check your credit score and see if there is room for improvement. A few quick fixes may help you to secure the best possible rate for your refi.
Shift in mortgage terms
Take a look at your various loan options to see if you can improve the terms on your current loan. For example, there may be some wiggle room between rates on a 30-year vs. a 15-year home loan refinance. If you originally purchased your home with a short-term adjustable-rate mortgage, there has never been a better time to shift into a fixed-rate mortgage. Today’s favorable market means more favorable terms so that you can structure your ideal mortgage according to your budget and your future plans.
Wave goodbye to PMI
If you purchased your home with less than 20 percent equity, you probably had to buy private mortgage insurance (PMI), either up-front or in the form of a monthly payment added to your mortgage. If you now have more than 20 percent equity, either because of mortgage payments that you have made in the interim or because of property appreciation, you may be eligible for a mortgage refinance without PMI payments. Check with your real estate professional to find out your home’s current market value and work with your loan advisor to determine if you can refinance into a loan that doesn’t require PMI.
Adios to Appraisals?
You may recall that when you first bought your house, you forked out a decent chunk of change for an appraiser to visit your property and help the lender determine how much it’s worth. In recent years, technological advancements in the mortgage industry have meant that in-person appraisals are no longer considered necessary for every transaction. This trend has only accelerated amid historic-low interest rates—which have driven a refinancing boom—and the ongoing COVID-19 pandemic. In fact, Fannie Mae and Freddie Mac have indicated increasing willingness to allow appraisal waivers as a means of reducing the burden on lenders, expediting loan closings, and limiting potentially risky in-person visits. These are key developments that are unlikely to reverse once the threat of COVID has abated—in short, while 2020 represented a fairly raw deal by most people’s measures, we’re confident it has ushered in much-needed and widespread digital transformation that will positively impact the mortgage industry for years to come.
While appraisal waivers may not apply in all instances, you’re certainly more likely to secure one if you have a good credit rating and have built equity in your home. Not only does an appraisal waiver save you money, but it could streamline the refinancing process—so what are you waiting for? You won’t know if you’re eligible unless you apply!
Additional financial security
Many people found themselves re-prioritizing in the early days of the pandemic, soon coming to realize that they had been spending too much money on things they could just as easily go without—whether an overpriced exercise class or a daily latte. If you’ve decided to get serious about your finances and rethink your spending habits, tapping into your home’s equity may be a good place to start. By pulling out some money at incredibly low interest rates, you can pay off higher-interest debt, make needed repairs to your home, or add or upgrade a space to use as a rental property in order to give you an additional income stream. Of course, we strongly recommend consulting with a financial professional before making any big decisions related to your financial picture.
What do you need to do to begin the refinancing process?
The first thing you’ll need to do is begin gathering documentation for your refinance. This will typically include the following if you are an employee (self- employed customers will require slightly more documentation):
- Two most recent pay stubs
- Two years of W2’s
- Most recent mortgage statement
- Two recent statements from retirement, savings, and investment accounts
- Proof of homeowner’s insurance
Next, you’ll consider a variety of options to determine which loan product is the right one for you. Depending on the type of loan you currently have and the type of loan you qualify for, you may decide to refinance into the same category of loan, or you may explore some new options.
Streamline your refinancing process
Both FHA and VA loans, for example, include a streamlined mortgage refinance option, which vastly simplifies the refinancing process. If you currently have either of these loan types, you can usually refinance into the same type of loan at the prevailing lower interest rate. You don’t have to provide employment or income verification and a home appraisal is not required. That provides an exceptionally simple process for creating a more affordable loan with more favorable rates—phew!
Calculate your closing costs
If you are considering refinancing, don’t forget to take into account closing costs. You’ll need to ensure that you are going to stay in your home long enough for the money you save on your mortgage to surpass the cost of the refinancing process. Explore low- or no-closing-cost mortgage refinance options in order to maximize the benefit of your refi. If you are planning to stay in your current home long-term but want to limit the amount you’ll have to pay at the closing table, explore the possibility of looping your closing costs into the loan itself.
One of the most important aspects of determining whether a home refinance is right for you is checking out a variety of loan types and scenarios. With thousands of possibilities at your fingertips, Simplist offers exceptional value and a host of options to create a truly tailored approach to home loans and refinancing. So, it’s time to dust off the vision board and make time to speak with a friendly Simplist loan expert today—we’ve almost certainly got the loan product you are looking for, and are excited to help you achieve your goals. Here’s to a better 2021!