Should I Refinance Now in Austin?
Should I Refinance Now in Austin? You may be asking yourself this very question.
Mortgage Rates Constantly Fluctuate
One day rates are on the rise and the next day they drop significantly. If looking to lower your mortgage rate through refinancing, you may be able to time the market and lock in low rates. However, there are a few things to consider apart from lower rates. For example, lower rates do not necessarily translate into lower monthly payments. Here are some things that you need to keep in mind before you consider refinancing.
Appraisal Amount
Getting property appraised at the value you want is the biggest obstacle in refinancing. The most accurate valuation is derived from sales that happened within a mile of the property and under 90 days. But the appraisal amount may not be as high as you think even if property values are up in your area. A refinance for an investment property and a primary residence are not the same. A primary residence may get a loan amount of 80% of the appraisal amount. For an investment property, the loan amount may be 70% depending on the type of loan.
Closing Cost/Property Taxes
The biggest difference between a finance and a repurchase is perhaps how the closing costs are paid. In a purchase closing costs are at the closing. With refinances, closing costs are rolled into the new loan amount. There is an option to bring the funds to the closing but most people do not opt for this. The closing costs are almost similar for purchases and refinance. The most expensive item at closing will be for prepaid property taxes. The new lender will hold a significant amount of property taxes and restart your escrow account. It can be as much as six month’s taxes depending on when you close it. Your new loan between property taxes and closing cost will end up being thousands above your current debt.
Decreased Equity
The new loan amount directly impacts the amount of equity available. Equity may not seem important but it gives you options in a jam. Equity will allow you to sell immediately and not worry about your bottom line. It also allows you to refinance and pull cash out later. With decreased equity and a high loan amount, you may be inclined to keep the property in a market shift.
Longer Term
The 30 year fixed is the most common loan term. Before refinancing you should note how many years you have left on your current mortgage. In most cases, you will be adding years and starting over. If you have 23 years left, you will have forfeited the last 7 years of payment. With a longer term, you save money per month but you add on extra years. You need to weigh the added years versus the monthly savings.
Monthly Savings
A lower interest rate may not result in monthly savings. Factoring in the closing cost and property taxes, there will be an increase in your new loan amount. Depending on the annual property tax amount, your new loan may be $8,000 – $10,000 higher. The higher you loan amount the slighter the change in interest rate required to impact it. Any savings need to justify the closing costs and the increased term.
Shorter-Term/Higher Payment
You may consider refinancing into a 15 year from the 30 year. When you do this you will first notice how much lower the interest rate is. It works opposite to the 30 year. Payments will increase in spite of a reduction rate in a shorter term. You will fall in
trouble if you are not comfortable with the repayments.
When considering a refinance, there are some initial steps you should take. First look for an online mortgage calculator and run the numbers. To find your new monthly payments, add your closing cost to the loan amount. Use a conservative interest rate with the estimates. Next, you need to know the current property values. Keeping in mind for an investment property you will need an increased value. If the numbers make sense and you think there is value now it may be a good time to refinance.