As mentioned Friday, with an inverted yield curve, mostly caused by longer term rates being lower than short, an opportunity MAY have been created….
We are going to put this in the Newsletter with more details, so please do not take this as an “ok” to run out and start refinancing, there likely is no hurry AND its a big decision…..
Mortgage Rates are Low Again
This chart is the Average 30 year rate across the US –
Here are a few points and rules we like to think about when considering a refinance:
- Think 18 months cost break even – We like to have the saving from the refinance cover the cost of the refinance within 18 months – i.e. Person with $30k mortgage at 5% probably would not need to refinance to 4%, but a $3 million mortgage may be smart to refinance from 4.25% to 4% or the like, if the numbers work out.
- Resetting Term – Remember if you reset your term, you are extending the treadmill – You may consider paying extra after the refinance to keep on prior term if desired.
- Planning on staying – It makes no sense what so ever to refinance if you are planning on moving in the next couple of years – life’s curve balls always happen, but if you are planning to move, likely pass on the refinance.
- 30 Year Fixed Mortgage is our favorite as you can accelerate your term by paying extra, but a 15 year had its merits too, especially if the rate is greatly different – we are not big fans of Variable rate loans.
- Closing Costs- keep low as possible- This will make your payback faster, easier and also give you the opportunity to refinance again in the future without angst.
- Buying down points to lower rates – We are not fans of buying down the rate – Ultimately this increases your closing costs and extends the break even analysis from above – If you did on the last mortgage, review where you are and make sure you are out of your break even period before refinancing again.
- Ancillary fees – It’s a complicated transaction and there are costs associated with it, deservingly so, but try to keep costs down so as to once again keep your break even period short.
- PMI – Private Mortgage Insurance – Stay away from this if at all possible. This insurance is a cost to you and does nothing for you as the owner/loan holder.
- Deductibility of cost – Some costs may be deductible, consider costs that are deductible for taxes over costs that are not – With changing tax laws, expect confusion on this point.
- Avoid teasers – If you google mortgage rates you will get some outlandish offers, if it sounds too good to be true, it is, there is always a catch. Don’t bite on something that is way different than the others.
- Careful with Hard Credit Reports – Once you lock in on a decision, avoid running multiple Hard/thorough credit reports (these are needed for mortgages) as duplicate checks will lower your credit score.
Have a Great “Possible Refinance Mortgage” Day!
John A. Kvale CFA, CFP