Numbers Count: Rate decreases spark refi opportunity?

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Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.

African American man looking out the window of a house, seemingly in thought (perhaps about whether to refi).The numbers: Mortgage rates have dropped to their lowest point in nearly a year, the Mortgage Bankers Association reported Feb. 17 in its Weekly Applications Survey.

The average rate for a conforming 30-year, fixed-rate mortgage decreased to 3.83%, from 3.91% – its lowest level since April 2015.

The average rate for a 30-year, fixed-rate jumbo mortgage decreased to 3.74% from 3.76% the prior week. This was the lowest level since December 2012, the MBA said.

What counts: I didn’t expect to be talking about low rates and refi opportunities this year, but it just goes to show how unpredictable interest rates can be. With rates back to spring 2015 levels, is it time to refi? Perhaps. Here are 4 questions to consider:

1. Can you lower your monthly payment? If you can lower your current mortgage rate by at least 50 basis points and intend to stay in your home for several years, it makes sense to consider a refi. The lower payment will likely offset potential upfront refi expenses, such as the appraisal cost and lender fees. Start by talking to a lender to run the numbers to see what works for your particular situation.

2. Do you want to pay off your mortgage sooner? When rates drop dramatically, many borrowers start to consider the advantages of a 15-year mortgage. A shorter term means a higher monthly payment, but with that comes the advantage of paying off the mortgage in half the time. The MBA survey found the average rate last week on a 15-year fixed-rate mortgage was 3.11%.

3. Do you want stable payments in the future? If you have an adjustable-rate mortgage and want the peace of mind of stable payments in the future, now may be a good time to consider refinancing your mortgage into a fixed-rate loan. The initial rate on an adjustable mortgage tends to be lower than the rate on a fixed-rate mortgage. In fact, last week the average rate on a 5/1 adjustable rate mortgage was 2.92% compared to 3.83% on a 30-year fixed mortgage, according to the MBA data. But many borrowers like the stability that comes with a fixed-rate mortgage.

4. Do you want to take cash out of your home? As you pay your mortgage month after month, you build up equity in your home. If your home increases in value, you also build equity. If you’ve accumulated equity in your home, you may want to consider taking advantage of lower rates to do a cash-out refi. The rate difference and the amount of cash taken out in the refi will be key factors determining the new monthly payment. You can play with our online mortgage calculator to consider different scenarios.

Here is a simple example: On a $320,000 mortgage at 4.33%, the principal and interest payment is $1,589. With last week’s drop in average rates to 3.83%, the payment on a $320,000 loan would be $1,497.

If you wanted to do a cash-out refi to take advantage of the 50-basis-point drop in rates, you could increase the mortgage balance by $20,000 to $340,000 and the payment would increase just one dollar to $1,590. This is a very basic illustration and does not take into account potential fees and points that might come with a refi. So talk to a mortgage specialist to get a full picture of the potential costs and benefits of a refi.

The bottom line: Low rates create an opportunity to ask questions and evaluate your mortgage payments to see if there are opportunities to improve your financial picture.

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