When interest rates drop, a lot of homeowners think about refinancing their mortgage loans — hoping for lower payments, shortening the term of the mortgage, or doing a cash-out refi for that vacation or to take care of that roof.
And rates are down. They’ve been very good for 10 years, looking at the historical record.
Mortgage rates floated up from about 8 percent to 10 percent during the 1970s, then rocketed to over 18 percent in the last quarter of 1981. It’s a huge contrast with the below-5 percent rates witnessed by borrowers since 2009.
And on June 6, Freddie Mac announced that the 30-year fixed-rate mortgage rate fell to 3.82 percent, the sixth weekly decline in a row and its lowest level since September 2017. The 15-year fixed rate in the June 6 mortgage market survey was 3.28 percent.
“We are seeing the lowest rates we have seen in two years,” said Cindy Levorah of Homeowners Financial Group’s Santa Fe office. “Two years ago, the stock market rallied at the time of the presidential election. This rally caused interest rates for mortgages to go up through the end of last year.”
Levorah said rates have dropped with inflation, and also with investors shifting their money into mortgage bonds in a nervous stock-market climate.
Refinancing your mortgage can help pay for a major expenditure, she said, or can be used to incorporate a second mortgage so you only have one payment, or to remove mortgage insurance premiums on both conventional and FHA loans.
There can be many advantages, but Ginger Bowe Sullivan of Anasazi Mortgage recommends caution. “Many times there are better answers than doing a refinance, which can be fairly expensive,” she said. “A refinance can end up costing about $5,000 for the title work, the appraisal, underwriting fees and the resetting of the escrows.
“The rates might be great, but should you refinance? I always say that it depends,” said Sullivan, who has worked in the business in Santa Fe since 1993. “The first thing I do is look at their current mortgage statement and we see how many years they have left, then we try to find a rate where they can recoup their investment in three to five years. Sometimes we drop a 27-year loan to a 20-year loan, or a 23 down to a 15-year loan.”
Sullivan practices “financial wellness” within her mortgage-planning activities. “I consider myself a mortgage consultant,” she said, but stressed that she only makes money when she originates a mortgage.
“I call my job a kaleidoscopic experience, because every time you twist it just a little bit, the whole picture changes. Is this a good time for a refi? I don’t know. It depends. There are all kinds of reasons.”
Among them is tapping a little of your equity to pay off student loans or to travel. However, too many people do a cash-out refi every few years. “I really try to discourage people from using their house as a piggy bank.
“I had a Realtor who wanted to do a loan for six months because she had some property in Florida she wanted to sell to pay off the loan,” Sullivan recalled. “When I found out she had a large amount of money in a stock portfolio, I told her she was better off to just borrow the money against her margin and keep the real estate.”
Your credit score and your loan-to-value (the ratio of your mortgage to your recently appraised home) also figure into the decision about refinancing.
A hot new product is the Homestyle renovation mortgage, which you can also use for home or landscaping improvements. “This is a one-time construction loan, through Fannie Mae, and you can borrow 75 percent of the appraised value of the house for renovation,” Sullivan said.
It can be done at the time of purchase or as a goal for a refinance transaction. “The lender manages the construction process and you have six months to complete the project.”
A relationship change can necessitate a mortgage change. That was true for Dora (who requested her last name not be used), refinanced with Homewise last year.
“I was divorced in November and wanted to take my husband’s name off of the loan,” she said. “It was also because my finance rate was a little higher and I was able to get that a little lower, so that helps.”
She bought her house in 1998. “My husband and I were together for 15 years and I decided, well, I guess I’ll put him on it, so we refinanced it about five years ago. You can’t just change the names; you have to refinance the whole thing.”
Dora said the process with Homewise just took a little over one month.
Laura Altomare, chief communications officer with Homewise, was another who emphasized that people should think broadly when thinking about a mortgage adjustment.
One of that organization’s specialties is free one-on-one financial coaching.
“For anyone considering a refinance,” she said, “I would advise to take the first step by coming to Homewise and talking to us about your individual situation and make sure you are evaluating all of the factors, not just the rate.”