Are you resisting refinancing your home? Really? Even though every finance genius alive is telling you to do it yesterday?! Is the paper work just too much to handle right now? Does it seem that the difference in your current interest rate and that promised by mortgage companies, on TV and in print, is not enough to go through the process? Has your job been furloughed? Maybe your income has been reduced or the idea of having to deal with banks and other sources during this pandemic is overwhelming.
Please read on. I will convince you that you simply can not wait another day to take advantage of this unique time in history. The benefits are just too great to miss.
To begin, refinancing is the process of getting a new mortgage by changing the terms of the one you already have on your home. You might be thinking of refinancing your mortgage for a few reasons — like taking advantage of lower interest rates, switching mortgage companies, reducing monthly mortgage payments, or using money from the refinance for a big purchase. Don’t worry: refinancing doesn’t mean you end up with two mortgages. Instead, your first loan is technically paid off through the refinancing process and a second loan is created in its place.
All of this interest-rate shifting is in an effort to boost the economy in the middle of the pandemic. We must give thanks to the Federal Reserve for dropping interest rates by half a percentage point at the beginning of March 2020 and then dropping again mid-month to between 0–0.25 percent. Zero percent is pretty attention grabbing, but keep in mind that it doesn’t mean you can get a mortgage with 0 percent interest. (Wouldn’t that be nice?)
If you were already tossing around the idea of refinancing, these low rates couldn’t have come at a more perfect time. Getting a mortgage with up to a 2 percent drop in interest rate can make a huge difference in your monthly budget and your ability to pay off your mortgage faster. And if you were thinking of refinancing from your current mortgage term down to a 15-year fixed-rate mortgage that is great also. Now is the prime time to do it!
So, you have decided to put your “lockdown depression” to the side and explore these crazy low rates. You’ll need to apply for a loan, just like when you applied for your original mortgage. To see if you will qualify, you’ll need to dig out some paperwork to make your case. Lenders look for different things, but generally, we want you to meet the following requirements:
A Maintained Original Mortgage. Lenders need proof that you have maintained and paid your original mortgage for at least 12 months before they will consider your refinancing.
Equity. It is best to show that you have at least 10 percent equity in your home.
Income. You have to prove you have a regular income, and lenders will also look at your debt-to-income ratio. Basically, they want to make sure you can pay based on the amount of money you make, and that any existing debt payments you have won’t interfere with your refinanced mortgage payment every month.
Credit Status. Having a lower credit score may result in higher interest rates.
With rates this low, it’s worth taking the time to see what’s best for your specific situation. And you’ll sleep better knowing you’re making informed, well-thought-out decisions for you and your family and not just jumping on a bandwagon.
Jim Gay was a real-estate broker for 20 years and has been a financial consultant to Fortune 500 companies. He is currently president of The Mortgage Place (505-986-9080) and can be reached at jim@tm-place.com.
The Santa Fe New Mexican observes its 175th anniversary with a series highlighting some of the major stories and figures that have appeared in the paper's pages through its history.
