Who needs to refi right now?
We have experienced a market where rates are finally dropping. Yea!
As I write this in December 2023, we are in the middle of a refi mini boom.
It may be an excellent time to refinance your home.
In this article, I will outline some reasons for refinancing in the current environment so you can decide if refinancing is a good idea for you.
What’s a “hell yes!” type of deal?
A “hell yes” deal is one where you don’t need to think about it.
You don’t need to do a spreadsheet to see if it’s a good deal.
You say, “hell yes!” and take the deal because the benefits are so obvious.
I don’t recommend refinancing if it takes a year or longer to recoup your closing costs.
The way to determine the recoup time is by dividing your monthly savings by the amount of the closing costs.
For example, someone with a savings of $100 per month with a closing cost of $1000 would take 10 months to recoup their closing costs.
I recommend you only refi on “hell yes” type of deals because we will see rates drop further soon.
However, we do not know how much rates will drop and when this will happen.
The average rate drop right now is minimal. Most people who qualify for a refi will only see about a 0.50% to 0.75% drop in rates.
Most of these people purchased their homes later than November 2022.
A refi could make sense if you are in any of the following categories and purchased your home in the past year.
Take the 30 second mortgage quiz to see if you qualify
You are eligible for a streamlined refinance if you have an FHA or VA mortgage loan.
FHA calls this the FHA Streamline program, and VA calls it the VA IRRRL program.
Both of these programs are very flexible and have minimal underwriting requirements.
They don’t even require an appraisal.
Paperwork is very minimal as well. Because of this, the closing costs are very low, which makes it easy to recoup your closing costs.
Within the IRRRL streamline program, one type of borrower will significantly benefit in this current environment.
If you are collecting VA disability, you don’t have to pay the funding fee. This makes your closing costs extremely low.
For example, I’m helping a veteran who purchased their home in March 2022. The vet is on 100% disability with no funding fee.
I’m covering the title and filing fees. The veteran only needs to cover the underwriting fee.
His total closing costs are about $600.
He is saving over $100 a month while dropping to a 29-year term. In this process, he is reducing his loan term by 4 months.
It’s an obvious “hell yes” type of deal.
It took me about 30 seconds to convince him to take this refi!
Take the 30 second mortgage quiz to see if you qualify
The more you owe, the more you will benefit from a refinance. This is because most closing costs are fixed while the savings vary by the amount you borrow.
If you owe more than $400,000, it only takes a little of a rate drop to see some massive savings.
One of the reasons I’m hesitant to discuss rates is because rates vary a lot by the credit score.
If you purchased the home while you had bad credit, then you would have paid a higher rate than someone with good credit.
Mortgages are risk-adjusted, so it makes perfect sense.
Lenders need to be compensated for that risk.
If your credit has improved significantly, a refinance can make sense.
Any time you are eligible to change mortgage types, it’s something you should consider.
Going from FHA to VA or FHA to Conventional can cause massive savings because the monthly mortgage insurance (FHA calls it MIP) will go away.
Even if you don’t get much savings from the lower rate, the savings from dropping MIP may be well worth it.
If you used an alternative lending Non-QM mortgage program to buy the home, and now you can do conventional financing, you would also benefit greatly in this current environment.
Take the 30 second mortgage quiz to see if you qualify
Multiple studies have shown that people are taking on record amounts of credit card debt as the economy has slowed.
The average credit card rate is now at 22.77%. If you have any balance at all, it can balloon up fast!
You can easily save big money by combining your credit cards with your mortgage.
It would help to find out your current “blended rate”.
When the credit cards and current mortgage are combined, this is the actual rate you pay.
If the new mortgage is lower than the blended rate, it makes sense to refinance.
In the process, you will also increase your cashflow.
This will enable you to pay off even more debt and improve your credit score.
Divorces and other breakups happen. Sadly, in most cases, the only way to remove an ex is to refinance the loan.
People avoided these types of refis in the past few years because they wanted to avoid paying a higher rate.
If you are in this situation, this may be an excellent time to remove that ex from the loan.
Take the 30 second mortgage quiz to see if you qualify
As you can see, there are several reasons that someone may want to refinance right now.
Again, I only recommend doing a refinance if it is a “hell yes!” type of deal where the closing costs can be recouped in a year or less.
As always, if you have any questions, comments or concerns, please contact me at 937-572-3713 or cscarpero@edgehomefinance.com.
If you’ve been denied for a VA home loan by major lenders like Veterans United or Rocket Mortgage, don’t lose hope. You still have a strong chance of getting approved. The reason? Many big online lenders enforce additional rules known as lender overlays, which go beyond what the VA itself requires.
Manual underwriting is a process that involves a human underwriter reviewing an applicant’s financial information instead of an automated system. This process can be used for VA loans when the VA’s algorithm doesn’t approve an applicant, or when an applicant has certain negative items in their credit history.
Are you worried about your credit history affecting your chances of getting a VA home loan? In this video, we break down the VA’s rules regarding credit occurrences and explain how you can potentially overcome credit challenges.
Take the 30 second mortgage quiz to see if you qualify
