Mortgage rates have dropped recently. This drop has many people considering a refinancing of their current mortgage. But a group of home owners that may not have thought about refinancing probably should reconsider it. They should not just refinance for a lower interest rate but also for an extension of the mortgage terms.
The group that should consider refinancing their mortgage terms are homeowners that are close to retirement or that may be in a situation of layoff or separation from their current employment. With oil prices on the down turn and the uncertainty in the economy with the coronavirus it may be a good time to consider refinancing.
This refinancing has more to do with lengthening the terms of your mortgage payout and lowering your payment than just the lower of the mortgage rate.
The reason for this is the time to refinance is when you will still qualify for refinancing.
Refinancing becomes much harder when you do not have a demonstrable W2 type income. Even if the home you are refinancing has equity well in excess of the principal amount you are trying to finance or you have saving that could be used to pay off the mortgage is needed. Mortgage lenders on using a check list for refinancing and the primary consideration is a monthly income.
Mortgage lenders are looking at your monthly income much more than the value of the assets you are refinancing or the amount of assets you are holding. When you start the process of refinancing your current mortgage, the lender will ask you for proof of employment and income. If you wait until you are unemployed (even if that is because of retirement), you may not qualify for refinancing under the mortgage rules rate. You may have to pay a premium rate that is less attractive.
Let’s say your original mortgage was for $500,000 with a 15 year amortization, so with principal and interest your payment is around $3500. You have paid down the mortgage and have a current principal balance of around $200,000 and 5 years left on the mortgage.
You believe your income is about to drop a lot or even go to zero. You may be thinking that making a $3,500 mortgage payment will be more difficult.
To make matters worse, now is not the time to have to sell your home. Here in Texas we are not only suffering from effects of the Coronavirus but also a steep decline in crude prices. Those two factors are causing drastic economic problems. Lots of people are filing for unemployment claims. It will be too late for them to refinance their mortgages. It is a buyer market, at least for now.
So, be thinking ahead. Start the refinancing NOW!
Go ahead and start the refinance process now. Rates are around 3% to 3.25% for a 30 year mortgage. Using the example above, with a mortgage balance of $200,000 on your original mortgage a refinance for 30 years at 3.0 % your new principal and interest payment will be less than $1000.00. The payment will be much easier to make and it will allow you to stay in your home until the market stabilizes for sellers. And when you consider the cost of moving may be more than the fees for refinancing it makes sense.
Additionally If your income doesn’t change, you can make the mortgage payment at your previous payment amount ($3,500) and still payoff the mortgage in the about same amount time.
Planning for the unexpected is a way to protect your home investment and not be forced to sell when the market is against you or you are in a situation where you need to sell your home.
With mortgage rates so low don’t just consider refinancing to lower your rate, consider extending the terms in order to give yourself flexibility in the future.