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Low Mortgage Rates: Is Now the Time to Buy or Refinance?

Mortgage rates are currently at an 18-month low, with some large lenders quoting a 30-year fixed rate mortgage below 4%! This means it may be a perfect time to refinance your mortgage.

Get Familiar with the Types of Mortgages:

You should become familiar with the three most common types of mortgages and how they work.

  • 30 Year Fixed Rate: This is generally considered the most popular type of mortgage. The main benefit of this type of mortgage is that your monthly payment will remain the same throughout the life of your mortgage regardless of what happens to insurance rates. If you are re-financing, financial advisers suggest you consider your age and earning potential as you will re-set your mortgage to a new 30-year payback timeline. In addition, they caution that this can significantly impact the total amount of interest you will pay until you have paid off your home completely. Financial advisers usually suggest you pay off a mortgage sooner rather than later, however, if you are refinancing but plan to sell your home in the next few years, this issue is less important.
  • 15 Year Fixed Rate: This type of mortgage comes with higher monthly payments, but you will benefit from a slightly lower interest rate. This type of mortgage also provides a fixed monthly payment, regardless of any change in interest rates.  Plus, because you will pay off your home in a shorter time-frame, you ultimately pay less interest over the 15 year period versus what you would pay cumulatively over the life of a 30-year mortgage.
  • Adjustable Rate Mortgage (ARM): An adjustable-rate mortgage means the interest rate will reset on a periodic basis based on the Federal interest rate which is entirely subject to financial market fluctuations. When the federal interest rate increases, your ARM will be impacted and, therefore, your monthly payment could significantly increase. Now, we have not seen interest rates significantly increase in this country over the last decade, but one never knows what is around the corner. This is often an attractive loan option for homeowners who believe that the interest rates are stable or may even drop in the future. It is also attractive for homeowners who know they plan to stay in a home for only a few years. However, with this type of mortgage, it is typically suggested that you put extra money aside in case interest rates ever rise and your monthly payment increases. This would ensure you have a safety net in place.

  Determining the type of mortgage that is right for you will depend on your preference and financial position.

What is Happening in the Market Currently?:

At the time this blog was written, rates for a 30-year fixed mortgage,15-year fixed mortgage and 15-year ARM fell.

30-Year Fixed: The national average rate is 3.73%

15-Year Fixed: The national average rate is 3.25%

ARM: The national average rate is 3.39%

According to the Mortgage Trend Index by Bankrate, 75% of their experts believe that mortgage rates will stay the same or continue to fall next week. 25% of their experts are expecting an increase in rates.

What Does this Mean for Me as a Potential Home Buyer?:

If you are in the market to buy a home, you are probably going to need a mortgage. Lower mortgage rates could mean it is the perfect time to buy. Whether you are a first-time home buyer or just looking to move, having a lower mortgage rate allows you to pay less in interest over the life of the loan. This can result in significant savings. For the time being interest rates are predicted to stay pretty stable. However, mortgage rates are unpredictable so locking down these low rates now may be worth it.  

Tips for a First-Time Home Buyer:

If you are a first-time home buyer purchasing a home is a major step and huge financial undertaking. It is important to shop around for lenders. Many first-time home buyers make the mistake of only getting one quote and this can potentially cost you thousands of dollars. Experts recommend you get at least 3 rate quotes from lenders. Remember to compare the quotes and the fees. You can also ask if any of the lenders will let you purchase discount points. Discount points allow you to prepay some of the interest upfront and allow you to secure an even lower mortgage rate.

If you decide to purchase a home having an App like vipHomeLink can really make the process easier. It allows you to build a home profile, stop the never-ending search by storing all important documents digitally, and sends you maintenance reminders so you know what to do and when to do it.

What Does this Mean for Me as a Homeowner?:

Why Should I Refinance? 
Some of the most common reasons to refinance are
  • Save money by locking in a lower mortgage rate
  • Free up cash from the equity value of your house to pay off higher-interest debt
  • Finance a major expense (e.g. a child's college tuition or a home renovation) 

What Will It Cost?

Refinancing definitely involves costs, often approaching $5,000 or more, that you would not incur if you stayed with your existing mortgage. These costs — which typically include appraisal fees, credit report fees, attorney and title fees, lender and loan origination fees — can often be incorporated into the new mortgage. You may also want to check to see if your current mortgage has any penalties for early repayment, as remortgaging will trigger these. This can also add to the cost.

Is It Worth It?

The answer to this can be derived by balancing any savings that you make from the reduced mortgage payments against the upfront fees you will pay. You also need to think about how long it might take to realize the savings.

For example, imagine you secure a new mortgage at an interest rate that is 1.5% below your current rate, it could still take up to four years before you break even on those expenses. Furthermore, if you don't plan to stay in your house that long, it is very unlikely to be a good financial decision to refinance.

Whether you decide to refinance or not, make sure you have all the appropriate documents you will need. Having an app like vipHomeLink allows you to store all your documents in one easy to access to place and are ready whenever you need them.

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