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Federal interest rates are low, should you refinance your mortgage?

Homeowners may be tempted to refinance their homes now that federal interest rates have been lowered.

Lending companies are advertising lower monthly payments and shorter loan terms if owners decide to make the switch.

Is it the right choice?

KRDO sat down with Jay Garvens, host of KRDO Radio Talk Show and branch manager of the Garvens Group of Churchill Mortgage, to get the details behind the deals.

What the trend you’ve seen in the last couple of months since interest rates have become so low?

“Everything is all of a sudden, interest rates, refinance, and we’ve been through it before. We went through the exact same thing in 2016, and we really went through a huge refinance, low-rate period within mortgage and business financing in 2012. Now, we’re just not accustomed to it coming so fast.”

People often hear refinancing their home is going to save them money. Is that the case?

“It’s not always the case, it’s a simple formula. The number one misleading statement from mortgage companies and sales reps is that your mortgage is free. Well, nothing is free. It just depends how quickly you can recapture your investment or cost of the loan in your monthly savings.

An example Garvens gave is, “If you go ahead and have $2,500 worth of closing costs and you save $100. That’s only going to take you 25 months to recover that expense, and then save money going forward from that date.”

On the other hand, “If you have $5000 in closing costs, and you’re only saving $50 bucks. That’s going to take 50 months. That’s like eight or nine years.”

How important are adjustable versus fixed interest rates at a time like this?

“Right now, the best thing to do is get the most affordable fixed rate, because in five years, the rate is going to be higher, not lower. Now the only exception to that at all is if you have a military member or a contract worker who has a contract or military orders to move in two years. Then you know what I tell them? Why are you refinancing anyway if you’re going to move in less than two years?”

Who is a good candidate for refinancing?

“It’s somebody that can save a minimum of $100 a month and have those charges recuperated in 18-36 months.”

Even if you’re a new homeowner?

“If someone just bought your home, you could eliminate the private mortgage insurance because equity went up so fast. You can eliminate your private mortgage insurance, which is insurance against the potential of that mortgage going into foreclosure. As soon as your equity goes from 5% to 20%, you can eliminate that. That’s the biggest savings. The people who just got into their house in the last year to three years are the best candidates because they are the one who has had the most equity increase in that $300,000 starter-home range.”

KRDO Only 2019