First it is important to discuss the record low interest rates. According to the latest market survey data on primary mortgages released by Freddie Mac on April 30, 2020, the 30-year fixed rate average fell to 3.23 percent. Last year around this time the 30-year fixed rate average was 4.14 percent. The 15-year fixed rate average has dropped below 3 percent, down to 2.77 percent. Last year around this time the 15-year average was 3.68 percent. These current 30-year and 15-year mortgage fixed rates are the lowest levels in the history of Freddie Mac’s survey which goes back to 1971, almost 50 years ago.
Until recently, high demand for housing in most markets has resulted in high valuations. The Federal Reserve Bank of St. Louis says the average sale price of a home in the US during the fourth quarter of 2019 was $382,300, a little lower than the all-time high valuation of $399,700 in the fourth quarter of 2017.
Lower mortgage interest rates, high housing valuations coupled with record high individual Fair, Isaac, and Company (FICO) scores (the average FICO score hit a record high of 703 in 2019) make mortgage lenders more friendly to potential mortgage loan refinancers.
4 Questions Before Going to a Mortgage Lender
Given that now may be a good time for employees to refinance their mortgages, you are encouraged to ask the following four questions before going to a mortgage lender to apply for a new mortgage:
- What is the cost to refinance and how long will it take to get my refinancing costs back?
- Do I want to go from a 30-year fixed mortgage to a 15-year fixed mortgage?
- Do I want to simply refinance the current principal balance on my existing mortgage at a lower interest rate, or do I want to “cash out” and refinance for more than the current principal balance at a lower interest rate?
- Am I better off paying off the current mortgage rather than keeping the mortgage and perhaps taking on more mortgage debt?
Check in with us and we can help you weigh the pros and cons of refinancing compared to other options such as paying off your mortgage or paying it down significantly with a lump sum (called recasting). There are other factors that we can help you consider such as your cash flow, access to "safe money" such as cash in your bank account, tax planning implications, and other uses for your money such as investing.