06
Dec
By Fred Gruber
Mortgage Rates

Why Refinancing Your Mortgage Before the Year Ends Is a Great Option

As the year comes to a close, it’s the perfect time to consider refinancing your mortgage. Whether you’ve been thinking about lowering your monthly payment, securing a better interest rate, or tapping into your home’s equity, refinancing can offer many benefits. However, the timing can make all the difference. Here’s why refinancing before the year ends might be a great option for you.

1. Lock in Lower Interest Rates

Interest rates fluctuate throughout the year, and while it’s hard to predict exactly when the best time to refinance will be, rates tend to dip during the fall and winter months. By refinancing before the year ends, you can potentially lock in a lower interest rate, which could lower your monthly payments and save you money over the life of the loan. A lower rate can make a significant difference, especially if your current rate is higher than what’s available today.

2. Take Advantage of Tax Benefits

When you refinance your mortgage, you might be able to deduct mortgage interest on your taxes for the year of the refinance. This can be especially beneficial if you’ve made significant changes to your loan or have paid off a substantial portion of your mortgage. Consult with a tax professional to determine how refinancing can impact your tax situation.

3. Access Your Home’s Equity

If your home has appreciated in value over the years, refinancing can allow you to tap into your home’s equity. You can use this equity to pay off high-interest debt, finance home improvements, or even invest in other opportunities. Refinancing before the year ends can help you take advantage of your home’s increased value, especially in a rising market.

4. Pay Off High-Interest Debt

With a cash-out refinance, you can use the equity in your home to consolidate and pay off high-interest debt such as credit card balances or personal loans. This can free up cash flow and potentially save you from paying exorbitant interest rates. By paying off these debts before the end of the year, you’ll start the new year with less financial strain and a more manageable budget.

5. Improve Your Financial Outlook for Next Year

Refinancing can give you a fresh start for the coming year. By lowering your monthly mortgage payment or adjusting your loan term, you can better align your mortgage payments with your long-term financial goals. Starting the new year with improved financial flexibility can provide peace of mind as you plan for the future.

6. Close Before the End of the Year

Many lenders may have end-of-year incentives or be motivated to close loans quickly before the calendar year ends. If you’ve been considering refinancing, this is the time to take action. By closing before the year ends, you can start the new year with a better mortgage and more favorable terms.

7. Refinance with a Shorter Loan Term

Another reason to refinance before the year ends is the possibility of securing a shorter loan term. Refinancing to a 15-year mortgage (or even a 10-year loan) can help you pay off your home faster and save money on interest in the long run. While monthly payments may be higher, the overall financial benefit of paying off your loan sooner can be substantial.

Refinancing your mortgage before the year ends offers several opportunities to save money, access equity, and improve your financial outlook for the future. Whether you’re hoping to lower your interest rate, pay off high-interest debt, or take advantage of your home’s increased value, now may be the perfect time to take action. Give us a call to assess your options and ensure that refinancing is the right choice for you.

29
Nov
By Fred Gruber
Mortgage Rates

What You Can Do Now to Prepare for Mortgage Rate Drops

As we move into the last month of 2024, many potential homebuyers are eagerly awaiting a drop in mortgage rates. With inflation numbers looking promising, there’s hope that the Federal Reserve will lower the federal funds rate, which typically drives mortgage rates down as well. If you’re planning to buy a home or refinance when rates drop, now is the perfect time to start preparing. Here are five key steps to get ready for the mortgage rate decrease and ensure you’re in the best possible position:

1. Improve Your Credit Score
Your credit score is one of the most important factors lenders use to determine your mortgage rate. A higher score can help you secure a better rate, potentially saving you thousands over the life of your loan. To improve your score:

  • Pay all bills on time.
  • Work on reducing credit card balances and avoid maxing them out.
  • Regularly check your credit report for errors and dispute any inaccuracies.

2. Assess Your Debt-to-Income Ratio (DTI)
Your DTI ratio helps lenders assess your ability to manage monthly mortgage payments. A lower DTI ratio (below 36%) is ideal, but you can improve it by reducing debt or increasing your income. Focus on:

  • Paying down high-interest debt.
  • Avoiding new credit obligations during the home-buying process.
  • Budgeting and prioritizing debt repayment.

3. Save for a Larger Down Payment
The more you can put down on your new home, the less you’ll need to borrow, which can lead to lower monthly payments and better loan terms. Saving for a larger down payment can also help you avoid private mortgage insurance (PMI). Consider:

  • Setting a clear savings goal and timeline.
  • Opening a dedicated savings account.
  • Automating your savings to stay consistent.

4. Explore Your Loan Options
Not all mortgage products are created equal. From FHA loans to USDA and VA loans, there are many programs designed to help you based on your unique financial situation. Research the different options available, such as:

  • FHA loans for first-time buyers or those with less-than-perfect credit.
  • VA loans offer no down payment for veterans and active-duty military members.
  • USDA loans for those buying in rural areas.
  • Non-QM loans for self-employed or non-traditional borrowers.

Connect With Us
The mortgage process can be complex, especially with changing rates. We can help you understand your options, improve your financial standing, and guide you through the homebuying journey. We will help to advise you on the best loan programs based on your situation and help you lock in the most favorable terms once rates drop.

 

25
Oct
By Fred Gruber
Mortgage Rates

What Is A Mortgage Par Rate And How Does It Work

Think of the par rate as the raw, default rate offered by a lender. It’s not the lowest rate you can get, nor is it inflated by any adjustments. Lenders determine the par rate based on a variety of factors, such as current market conditions, your credit score, the loan type, and the loan amount.

Discount Points: Lowering Your Rate

When you’re negotiating your mortgage, you can choose to buy “discount points” to lower the interest rate below the par rate. Each discount point typically costs 1% of the loan amount and can lower your interest rate by a fraction of a percentage point. For example, if the par rate is 5%, purchasing one discount point might reduce your rate to 4.75%.

While paying for discount points increases your upfront costs at closing, it can save you money over the long term. If you plan to stay in your home for several years, buying down your rate could reduce your monthly payments and save you thousands of dollars over the life of the loan.

Lender Credits: Increasing Your Rate to Reduce Costs

On the other hand, lenders may offer something called “lender credits.” Lender credits are essentially the opposite of discount points. Instead of paying a fee to lower your rate, you accept a higher interest rate than the par rate in exchange for credits that reduce your upfront costs, like closing fees.

For example, if the par rate is 5%, you might accept a 5.25% rate, and in return, the lender gives you a credit that could cover some or all of your closing costs. This option can be attractive if you’re short on cash for closing or would prefer to minimize your out-of-pocket expenses.

However, the downside to accepting lender credits is that you’ll pay more in interest over the life of the loan. The higher interest rate will lead to higher monthly payments and increased overall loan costs, which may outweigh the short-term benefits of lower closing costs.

How Is Your Par Rate Determined?

Several factors influence what par rate you qualify for:

  • Credit Score: Lenders view borrowers with higher credit scores as lower risk. The better your credit, the more likely you are to receive a favorable par rate.
  • Loan Type: Different types of loans (fixed-rate, adjustable-rate, FHA, VA, etc.) will have varying par rates.
  • Loan Term: A 15-year loan typically offers a lower par rate than a 30-year loan.
  • Market Conditions: Interest rates fluctuate depending on the overall economy and housing market trends. Lenders adjust par rates based on these factors.

It’s important to compare the par rates from different lenders and consider how buying points or taking credits could affect your overall loan costs. A par rate isn’t necessarily the rate you should settle for, but it gives you a clear starting point for negotiations.

Making the Right Decision for You

Ultimately, the decision to accept the par rate, buy down the rate with discount points, or increase the rate in exchange for lender credits depends on your financial situation and long-term plans. If you plan to stay in your home for a long time, paying for discount points might be worth the upfront cost. Conversely, if you’re looking for lower upfront expenses, opting for lender credits could make sense, especially if you plan to refinance or sell the home within a few years.

Understanding the mortgage par rate and how it works is crucial when shopping for a home loan. Whether you choose to stick with the par rate, buy it down, or increase it for short-term savings, being informed will empower you to make decisions that benefit your financial future.