How Low Can You Go?
As mortgage rates creep towards all-time lows, potential savings beacon to homebuyers and refinancers alike. Homebuyers are presented with the opportunity to lock in lower than ever long-term loan rates, while those with existing loans have the opportunity to refinance to record-low rates.
Buyers and Sellers
Whether you are a potential first time homebuyer or a homeowner looking to sell, rates this low are certainly worth your attention. Even just a .5 percent cut in mortgage rates could be great news for your wallet.
When looking at what mortgage rates can mean for you long-term, a drop in rate from 4 to 3.5 percent will save you money on both principal and investment. How much money you save is dependent on the amount of your loan. For example, say you are looking at a mortgage of $200,000 with a 20 percent down payment and 30-year loan term. Your monthly payment drops from $984.83 at 4 percent to $898.09 at 3.5 percent. You can calculate your projected monthly payment online with this mortgage amortization calculator.
In addition to saving money over the long term, these rates mean an initial lower qualifying income to secure a loan. For example, say you were looking at the same $200,000 mortgage with a 20 percent down payment and loan term of 30 years at a rate of 4 percent. However, your application was denied due to income requirements by the lender. At a 3.5 percent rate, your qualifying income drops by $2,431. You can calculate your own required income for a mortgage online here.
These kinds of savings are not only important to first time homebuyers, but to sellers as previously locked-out purchasers enter the marketplace.
Many factors come into play when deciding whether or not to refinance your home, and it’s important to measure upfront cost against long-term savings. This will vary based on interest rate, loan term, closing costs, and how long you expect to stay in your home.
Typically, refinancing makes sense when interest rates fall by at least .75-1 percent. However, even those with smaller margins between their current interest rate and those offered now might consider refinancing. If you plan to remain in your current home long-term, even modest monthly savings can accumulate to warrant the expenses of refinancing your loan. Moreover, at Delmar Financial, we often cover the closing costs of refinancing. Thus, even refinancing savings as low as .125% become worthwhile. Online calculators such as this one are extremely helpful in determining whether or not refinancing is appropriate in your given financial situation.
Additionally, record low rates make the current climate ideal for those looking to switch to a different type of mortgage. For example, lower rates enable those wanting to payoff their home faster to move from a 30-year loan term to a 15-year term with less financial burden.
The Big Question
We can all agree that falling mortgage rates are great for first-time homebuyers, sellers and refinancers alike. But for how long will mortgage rates stay at or near current levels? Unfortunately, no one has the answer. According to BrankRate’s Rate Trend Index, just 11 percent of experts surveyed believe rates will increase over the coming weeks, 56 percent believe rates will fall and the remaining 33 percent believe rates will remain unchanged.
What the future holds for mortgage interest is anyone’s guess. So if refinancing is enticing to you now, playing the waiting game could save you a little more green. However, it’s equally possible for your advantageous opportunity to vanish into thin air.
So evaluate your current situation and ask yourself some basic questions such as: What percent rate decrease justifies refinancing? How long will it take for monthly savings to counterbalance transaction cost? And, does my income qualify me to purchase the home I want?
Contact one of our expert loan officers at Delmar Financial today to get the answers to all these questions and more: (314) 434-7000.
Ready to take the next step? Visit us online to fill out a mortgage application today!