Is This the Year You Should Refinance?


By now you have probably heard about the historically low interest rates that have been in the housing market for the last few years, but do you know if you should be taking advantage of these rates? Many mortgage lenders will advertise for anyone and everyone to come and refinance, but it’s not actually the right move in every situation. Here is how you can figure out if it’s the right move for you.

Analyze the Differences Between Loans

Start with an honest appraisal of your current loan situation. Write down:

  • Your monthly payment, including principal and interest (not including homeowner’s insurance, since this cost is more or less fixed regardless of your interest rate)
  • Your current interest rate
  • The remaining balance on your home loan
  • Remainder of your loan term, in years

Next, you want to look at the new loan you will get if you refinance. Write down:

  • The new interest rate you will get (don’t just estimate based on the lowest available rates, talk to a mortgage loan company in Salt Lake City to help you get an accurate estimate of what you might be able to get approved for)
  • The remaining balance on your loan (the amount you will be financing)
  • The term of your new loan, in years
  • Total closing and other costs

Calculate Your Break-Even Point

Armed with this information, the next step is to calculate exactly how long it will take you to “break even” on your new loan. If you refinance, you will save money on your monthly payments with the lower rate, but you will also have some additional closing costs. You may choose to pay these up front in cash, or have them rolled into your new home loan. Either way, you will need to calculate how long it will take for the savings on your loan to make up for the costs.

For example: if your new payment is $100 less than your old monthly payment after a refinance, and the closing costs are $4,000 total, it will take 40 months to break even on the refinance.

Pay Attention to the New Term

When a new loan begins, the bulk of your monthly payments will go toward paying the interest. Over time, as you pay down the principal balance, the payment shifts toward paying more to principal and less to interest. If you refinance and start the clock over again on your loan, keep in mind that even with some monthly savings, you might end up paying more on the house total over the life of the loan than you will save with a refinance. If you are more than halfway into your loan, talk to a lender about whether or not it makes financial sense to refinance.

Timing the Market

Rates for mortgage loans have been hovering around historic lows for about five years now, but since they are not at their lowest, some homeowners are holding on and waiting to see if they go lower. While you might get lucky and see rates go down even more, what’s more likely is that rates will go back up—and most people know that it’s not a question of if they go up, just when. For that reason, now is as good a time as any to lock in your low rate and make sure you save.

Refinancing doesn’t make sense for everyone. Those planning to move in less than three years, or people with poor credit who would not be able to significantly lower their rates, as well as homeowners who only have a few years left on a mortgage, are usually better off to stick with their current loan. In just about every other situation, refinancing can have many benefits. Talk to Altius Mortgage today to find out if it’s right for you.

Calculating How Much You Can Afford in a Home

When most people start their home buying process, they begin in what they think is the best place: searching current home listings for the right property to purchase. Finding that perfect home in the ideal neighborhood is the goal, and certainly the fun part of home shopping, but if you go straight to the search, you’re actually missing out on a critical step before that: calculating how much home you can afford. Here are the factors to take into consideration when trying to determine your budget so you can find that dream home and be able to get qualified for a loan and make the payments.

1: Income

The first factor in determining how much you are likely to get approved for on a home loan is your total monthly income. This may be a salary from a job, but it could also include alimony, investment income, and other sources that you can count on for regular income. Even though lenders often use gross monthly income to determine your eligibility for a loan, you will need to make calculations based on net income after taxes and other withholdings are taken out.

2: Monthly Obligations

Once you know how much money you have coming in each month, the next step is to write a detailed budget that includes all your monthly obligations. Start with the stuff you have to pay—car loans, student loans, and credit cards or other revolving debt—then move to essential like groceries, car insurance, and utility bills, then finally leave some wiggle room for non-essentials like entertainment and clothing. If you’re not sure on some of these things, track your spending for a few months before you start this process so you have an accurate picture of your spending.

3: Down Payment & Closing Cost Cash

Most lenders today don’t have a lot of options for zero down payment loans, although they do exist and might be an option for some buyers. For all the other home buyers, you will need to have at least 3% to 5% to put down on a home, but preferably you should have between 10 and 20% of the total purchase price to put down (the amount you will be required to put down depends on the type of loan(s) you are eligible for). Also note that if you do not put down 20% you will have to factor in private mortgage insurance (PMI) in your monthly payment.

4: Credit Score

One final factor before you start home shopping is to take a look at your credit score. Having a poor credit score can significantly impact your ability to get approved for a home loan. In addition, if you are highly leveraged (with lots of outstanding debts on your credit report), a lender will view you as more of a risk and may reduce what they are willing to loan you.

Many future homeowners go and get pre-qualified for a mortgage to get an idea of how much they are likely to be able to borrow, but it’s important to note that sometimes lenders will tell you that you can get approved for an amount that is much higher than your current budget and lifestyle can support. Don’t think that you have to purchase at the top end of your pre-approval amount—take all your calculations into consideration before you decide.

To find out more about loans for homebuyers and get pre-qualified or pre-approved, call Altius Mortgage today.