Mortgage rates hit again a new recordSo it’s no wonder that many Americans refinance their homes.

Add to that the Coronavirus pandemic and the economic recession, and the need to find additional liquidity or to cut spending becomes even greater. In fact, refinancing requests are 111% higher than a year ago, according to the Mortgage Bankers Association.

The 30-year fixed mortgage rate is now 3.24% and the refinancing rate is 3.33%, according to Bankrate.com.

“We are telling anyone with a loan greater than 4% to consider refinancing, if they still have income,” said Winnie Sun, Chairman and Founder of Sun Group Wealth Partners, based in Irvine, California.

This is exactly what a parent of mine did. My 62-year-old uncle recently completed the refinancing of the house he shares with his wife in Morris County, New Jersey. The couple cut their interest rate to 3.25%, compared to 4.75% for a 30-year fixed mortgage.

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While they can now save around $ 500 per month on their mortgage payment, the couple opted to add $ 350 each month to pay off the loan in 20 years, which was left over from their previous mortgage. They always have an extra $ 150 per month in their pockets and have the option of paying the minimum if they need the extra cash for whatever reason.

The decision to take out the 30-year fixed rate loan is a smart one because the monthly payments on a 15-year mortgage are higher, said Sun, a member of the CNBC Financial Advisors Council.

While her clients are excited about the low rates and consider a 15-year fixed mortgage, Sun suggests putting the extra money saved on those monthly payments into a emergency fund in case someone loses their job or the pandemic lasts longer than expected. If they are able, they can pay more each month to reduce the principal, but have the option of reducing, if necessary.

If you can reduce your interest rate by half or three quarters of a point, it is worth considering refinancing.

“We are living in unprecedented times and because most Americans do not have emergency funds and half of Americans are unemployed, it’s important to be realistic about the money, ”Sun said.

So how do you know if it’s the right time to refinance your home?

“If you can cut your interest rate by half or three quarters of a point, it’s worth considering refinancing,” said Greg McBride, chief financial analyst at Bankrate.com.

However, “this may not work in all of these cases.”

Determine your breakeven point

First, think about how long it will take you to recoup the cost of refinancing your home from your monthly savings. Then see how this schedule fits with your future plans to stay in the house.

“If you can break even in two years and you don’t plan on moving anytime soon, then you’ve got the green light,” McBride said.

Get the best rate

Just because the current rate is 3.30% doesn’t mean you will necessarily get this rate.

“You have to have good credit,” McBride said. “You must have a compliant debt ratio and you must have sufficient income.”

Rates can also vary from lender to lender, so be sure to shop around. Start with your current lender, since your information is already saved. This can speed up the qualification process and possibly save you money, he said. Then look for other competitive quotes.

You may also find that your existing mortgage company will match a lower rate if you have it in an email from the competitor, Sun suggested.

Watch closing costs

Another factor to consider is whether you can afford the closing costs, which typically include application fees, title fees, title search, title insurance, and appraisal fees. Refinancing generally costs between 2% and 6% of your loan amount, according to LendingTree.

Some refits can be done with no upfront closing costs, but the interest rate is usually higher because the costs are financed in the house, Discount rate reports.

Again, shop around as fees may vary.

“Often the best way to assess the true cost of that loan is to look at the annualized percentage rate,” McBride said.

“This reflects not only the interest rate, but also the fees charged to obtain this loan.”

You can also get lower fees if you stick with your current lender. Jeremy Crawford, a lawyer who rents an apartment in New York City, is currently refinancing his vacation home in Florida and has only had to pay a $ 500 application fee.

Jeremy Crawford was able to lower his mortgage rate to 3%, compared to 3.75% for his house in Florida.

Source: Jeremy Crawford

He bought the house, which he plans to use as a retirement home, in January and had an already low rate of 3.75%. Crawford managed to reduce it to 3%. It will close on July 17 and save $ 167 per month.

“I don’t have a 401 (k) plan or pension, so I’ve always worked to try to get residual income,” said the 42-year-old.

This is also not the first time that Crawford has refinanced itself. He also owns an investment property in North Carolina, which he bought as foreclosure in 2008. He did a cash refinance about two months ago, which many banks have temporarily stopped doing in this regard. moment.

Crawford lowered his rate from 4.5% to 3.5% and walked away with about $ 65,000 in cash. He used some of that money to buy a car and make improvements to his Florida home, including a swimming pool.

Now he is looking to open this retirement account.

“I will be opening a 401 (k) this year,” he said. “I opened a E-commerce account for the first time this year.

“Everything I was afraid to do because I wanted the extra money in my pocket.”

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