Looking to save money on your mortgage? With interest rates on the rise, it’s more crucial than ever to secure a lower rate. Here’s a simple guide to help you do just that.
Since 2012, homeowners have seen a significant increase in equity. This, coupled with a slowdown in home prices, makes 2023 and beyond an ideal time to invest in real estate. I’ve been refinancing mortgages across various properties since 2003, and I’ve got some tips to help you get the best possible mortgage rate.
1) Negotiate with your current lender: Your existing lender doesn’t want to lose your business. So, ask them if they can offer you a lower rate. I did this with Citibank, who initially offered me a 3.125% rate for a 7/1 ARM. After some negotiation, they reduced it to 3%.
2) Shop around online: You can get multiple competitive quotes in minutes by checking for mortgage rates online.
3) Reach out to your old mortgage officer: If your previous mortgage officer has moved to a new bank, they might be willing to offer you a better rate to win your business.
4) Offer more business to your lender: Banks love customers who use multiple services. If you tell your lender that you’ll open several new accounts with them if they match or beat a certain rate, they might be more willing to negotiate.
Remember, always refinance your mortgage when you can break even in under 18 months and plan to keep your property for several years. You can calculate your break-even period by dividing the cost to refinance your mortgage by your monthly interest savings.
Inflation and interest rates are also important factors to consider when refinancing. Despite many predictions to the contrary, I believe that interest rates will remain low for a long time due to various factors, including efficient global monetary policy.
If you have an adjustable-rate mortgage (ARM), you’re in luck. Rates are resetting at equal to lower levels than when they were originally fixed. Those with 30-year fixed mortgages have been paying 1-2% higher interest rates than necessary.
When it comes to refinancing costs, divide the total cost of refinancing by the monthly savings to see how many months it will take to break even. For example, if it costs $3,000 to refinance a $400,000 loan from 5.25% to 4.25%, your monthly payment will decrease from $2,375 to $2,135, saving you $240 per month. It would take 12.5 months to break even.
Refinancing can be a hassle, but it’s worth it if you can save money in the long run. Be prepared to spend at least five hours talking to your mortgage representative and handling paperwork.
Finally, think like an investor when refinancing. Utilize the right mix of debt and equity to provide the highest return on equity possible. If you’re a mortgage borrower, you actually want inflation to come back. Inflation means your underlying assets – in this case, your home – is inflating at a higher rate than before.
In conclusion, always seize the opportunity to refinance your mortgage when you see one. With rates at 6-year lows in 2020, now is a great time to refinance.
If you’re interested in real estate but don’t have the down payment or don’t want to manage properties, consider real estate crowdsourcing. Companies like Fundrise and CrowdStreet allow you to invest in real estate beyond your local area for the best possible returns.
