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Non-rate reasons for refinancing your mortgage

When it comes to the very latest in residential real estate events, stories that tend to make the news are usually related to asking prices, and the availability of homes for first-time or move-up buyers. But another newsmaker is the state of interest rates, which fell rather sharply in 2018.

The general rule of thumb is if you can lower your interest rate by 0.5% or more, refinancing is worthwhile by virtue of helping you save potentially thousands of dollars over the life of the loan. However, a low-interest rate environment is not the sole reason why refinancing can be a smart move. Here are a few other reasons why it can be worth the time and effort:

Reduce the loan's term

Generally speaking, there are two options you can choose from when it comes to how long you intend to pay off your home loan: 15 and 30 years. Overwhelmingly, the most common choice is 30 years. However, with the economy in bull territory, salaries increasing, job availability outnumbering those looking for work and the national unemployment rate as low as it's been in over half a century, you may be in a better position to pay more per on a per-month basis. The upshot here is, you'll be able to pay off the entirety of the loan more quickly and ultimately pay less than you would with a 30-year mortgage.

You can find out exactly how much you stand to spend per month by changing to a 15-year term length - and how much you'll save - with a mortgage calculator.

Switch from FRM to ARM

Just as you typically have two choices of terms, you also have dual options for the type of interest rate: Fixed Rate Mortgage (FRM) or Adjustable Rate Mortgage (ARM). Fixed is the most common choice because it provides borrowers with the predictability they need to make the appropriate adjustment with their budget and how much they can expect to spend.

However, depending on how long you've owned your residence, your circumstances may have changed, making an adjustable-rate mortgage a better option. For example, if you're thinking about moving in a few years - which you may not have considered when you first applied for a  mortgage - an ARM may be a wiser option, in part because rates at the outset may be lower than they are with fixed.

Alternatively, if you no longer plan on relocating, switching to fixed with rates where they are now can help keep your monthly payments in historically low territory so you never have to worry about the impact rising rates will  have on your wallet when - not if - they do climb. 

Tap into home equity

It's said that real estate is one of the best investments you can make. This is largely due to the direction of home prices, as they've risen consistently on a year-over-year basis for 92 months in a row, according to the most recent figures available from the National Association of Realtors. Similarly, home equity levels have also surged. In the third quarter of 2018, over 54 million homes were equity-rich, according to estimates from ATTOM Data Solutions. That's the equivalent of more than 1 in 4 homeowners. Meanwhile, just 3.5 million mortgages were underwater.

Tapping into the equity your home has built up can provide you with more options when it comes to decisions that cost money. For example, if you want to refurbish your kitchen, bathroom or dining room, cashing out can supply you with the funds necessary to pay for the equipment and labor involved. You may also want to use the proceeds to purchase a business or make a down payment on an investment property. All this can be done by refinancing.

Forego mortgage insurance

Many people are under the assumption that they have to make a 20% down payment in order to buy a house. In reality, you can buy a house with as little as 3.5% down, and if you're a veteran or active duty member of the military, or purchase in a designated area, you may not need a down payment at all.

Perhaps the main reason why this 20% down requirement myth has persisted is due to mortgage insurance. If you put down less than 20% of the house's listed price, mortgage insurance is generally required so the lender can be made whole if the borrower defaults.

If you're someone that currently has mortgage insurance and you want to avoid paying the premiums associated with keeping the policy current, you may be able to eliminate it by refinancing into a conventional mortgage. Since more properties these days are equity-rich, you may have the 20% equity that is necessary to waive mortgage insurance. 

There's a caveat

As you can see, the reasons why refinancing can make a lot of sense aside from taking advantage of historically low mortgage rates run the gamut. However, just because a variety of other scenarios exist does not necessarily mean that you should - or will even be able to.

Whether you should or not depends on your goals first and foremost. If you don't know or they're still a work in progress, avoid refinancing until you're sure of the path forward. You may want to speak with a financial advisor for some direction. A loan officer may also be able to help you to chart out a strategy for real estate investing decisions.

The other thing to be mindful of is refinancing qualification. Refinancing a mortgage is just like a purchase mortgage, in that you need to have the appropriate qualifications in order to be eligible. Some of the things your lender will look at are your income, your loan-to-value ratio, credit history and FICO® score. Talk to your lender about the documentation necessary to refinance. Much of the material you'll need is similar to what's required in order to pre-qualify.

Talk to your lender for more news and information on refinancing and whether you're in a situation that makes you an ideal candidate.



National Mortgage Professional Magazine included a great write-up about us!

Helpful Tips

Tips to Land a House in the Spring Market

Although each month is composed of roughly the same number of days from one to the next, some seem to come and go with lightning speed. There's no better example than December, which is frenzied with holiday hoopla.

But once January, February and March roll around, things definitely seem to slow down - and in more ways than the cold gripping the vast majority of the nation. This is also true in the real estate business.

No two ways about it, as documented by the National Association of Realtors and other real estate and home listing agencies, summer is the busy season for buying and selling homes. If you have any mobile apps that alert you to potential homes that are within your budget, you're no doubt well aware that this is the case. Open house announcements were particularly fruitful this past June, July and August as supply levels edged higher. Houses are also remaining on the market for longer stretches, as evidenced in October, the most recent month for which data is available (36 days, up from 32 in September).

However, almost as soon as the vernal equinox sets in - signaling spring has officially sprung - the housing market really starts to pick up steam once again. No matter where you may be house hunting, "first up, best dressed" may be the best phrase to describe the house shopping rush. With the national median existing-home price having risen on a year-over-year basis for 92 months in a row, high demand hasn't let up for a long time.

However, there are things you can do right now to ensure that you get ahead of the rush when April showers bring May flowers and the wide assortment of newly available houses are "in bloom" as well.

Here are a few things to consider if you're considering buying a home in the not-too-distant future:

Get pre-approved

As previously referenced, the housing market is a first come, first served industry. If sellers know you're serious about buying, they'll be more receptive to your interest. One of the best ways of going about this is with a pre-approval letter in hand. 

As its name suggests, pre-approval is a status you can obtain from a lender, which indicates you have the financial means to buy a property up to a certain price. In order to get such a letter, your mortgage provider will need a few things from you for corroboration purposes. Items typically include W-2 forms, two years' worth of complete tax returns, statement of available funds, pay stubs and a copy of your credit report. These particulars will provide your lender with an idea of how much you can afford.

Keep in mind, however, that a pre-approval letter is non-binding. In other words, you will still need to go through a more formalized loan approval process once you settle on the house you'd like to make an offer on.

Raise your credit score

There's no getting around the fact that home prices are notably higher these days than as recently as 10 years ago. The pace with which they're rising is now slowing, thanks to improving inventory. Additionally, interest rates remain near record lows, which can help you save on your monthly mortgage expenses.

The best way to obtain a low interest rate is by improving your credit score. Generally speaking, the higher it is, the lower your potential rate. To see where you stand, you can request a copy of your credit report for free from any or all of the credit bureaus: TransUnion, Experian and Equifax. Simple ways of improving your score include paying off all your bills by their due date, keeping credit card balances low and applying for credit only on an as-needed basis. Contrary to popular belief, opening new accounts purely for credit diversification purposes has more potential drawbacks than benefits, according to Experian.

Buy now to save later

You may have already gone through the pre-approval process, leaving you to hurry up and wait for spring to roll around. It may behoove you to jump into the home search before winter ends, especially if you want to buy a place at an affordable price.

According to analysis conducted by ATTOM Data Solutions, which examined single-family home and condominium prices over the past six years, winter was consistently the season in which asking prices were at their lowest. Ohio, prices averaged 7.4% below market value in January, -7.2% in February in Michigan, -6.3% in February in Delaware and -6.2% in Tennessee in January.

And in terms of the days of the year in which prices were their lowest, they all fell in the month of December (4th, 26th and 31st), the study found.

Settle on the style

From Victorian to colonial to ranch to split-level, the types of houses are almost as numerous as properties themselves. Each offers its own pluses and minuses when it comes to curb appeal, practicality and layout. If you have a few in mind, try to determine the one that you like the most. You may want to speak with a real estate expert so you can get their insight on the ones that are most in line with your goals and family composition. This will help you with the selection process once places become available.

Shop around for more than rates

As important as it is to do your homework when it comes to the house you intend to buy, the same holds true for the lender you select when applying for a mortgage. There are tons of providers you can consider, some national, local and even those that are exclusively online. Understand that there's more to a lender than just the interest rate. You should also consider their reputation and the type of customer service that others can speak to. Talk to friends for suggestions. You may also want to go online to do some of your own research. The Better Business Bureau is a great place to start.

It's true what they say: How you finish depends upon how you start. We can help you get the ball rolling at Residential Mortgages Services. Apply today or contact us to find out more about the loans we offer.



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