I Just Refinanced In 2018. Should I Refinance Again?

posted in: Mortgages

The above is an excellent question. In this blog, I am going to explain why refinancing now in 2021 makes good sense. There are several reasons why the borrowing public may be asking why their loan officer is calling them to discuss refinancing their homes. The fact is mortgage rates are unpredictable as are home values. Many people don’t even know that property values have gone up in the last 18 months. I have said this in other blogs. With the pandemic and now with the Omicron strain being all the talk, now would be the time to pull equity from your home to stow away cash for an emergency fund. What follows are three scenarios that may apply to YOU.

Scenario #1:

You have a government loan (FHA) and you have sufficient equity in your home to eventually eliminate mortgage insurance. Under the rules, you will be paying, monthly MI for 11 years, but it will drop off automatically.  Even if the rate is at or slightly above the rate you received three years ago, the elimination of the mortgage insurance payment would put more money where you want it most…in YOUR pocket, not the lender. This means a boost to your income or if you like, a pay raise!

Here is an example of the potential savings on a $300,000 FHA mortgage payment with an average rate of 4.7% (2018):

PI: $1452

MI: $187

Were you to take advantage of today’s lower rates, the payment would be:

PI: $1175

MI: $180

The savings monthly is $284 per month! After 10 years, the monthly MI drops off and you will be saving an additional $180 per month. Can you afford not to call 7th Level Mortgage TODAY?

Scenario #2:

In the next scenario, I am considering shortening the term on the loan you took out in 2018. Here is a breakdown of reducing the rate and the term simultaneously:

In 2018, the loan amount you took out is the same as scenario #1, a 30 year fixed FHA rate of 4.7%:

PI: $1452

In 2021 the average 15 year FHA rate is 2.5%.

PI: $2457

Although the payment goes up, the interest saved over the term is $100,898. Again, can you not afford to call 7th Level Mortgage today?

Scenario #3:

In today’s economy, coupled with the COVID-19 pandemic still active, the loss of jobs, cash is indeed king. Many people refinanced in 2018 to pull out equity in their homes for cash, however, no one could ever predict that rates would drop even lower and home values would go up a mere three years later. What this means for and provides for you is yet again another opportunity to cash out more equity in your home. This will provide for you a more stable future, an emergency slush fund, and perhaps a much-needed vacation. The recommendation is that we keep a minimum of six months’ monthly payments in reserve for emergencies. With jobs being eliminated due to shutdowns and illnesses, this money could save you a lot of heartaches and worry down the road. Based on the numbers I have been using so far, here are the potential savings and cash you could reap by refinancing today, again with a $300,000 loan amount at 4.7% on a 30-year rate:

$300,000 mortgage amount

$375,000 home value in 2018

4.7% interest rate 30 year fixed = 3.25% interest rate 30 year fixed

PI: $1452 = $1240

The savings monthly is $242. This does not include taking equity out of the home, but, if you did to pay off high-interest rate credit cards, the monthly savings grows even more! The average increase in home values is 16.2% in 2021. The estimated value of your home now is approximately $435,750. The equity in your home that you have is 31.1%. That means that you have a lot more equity than you did and therefore flexibility in how much you can access to pay off high-interest rate credit cards, cash for a rainy day, and the opportunity to take the cash and put it into your 401K or IRA for retirement. Another opportunity is for your children and grandchildren. You can put away money for a child’s first car, college expenses, and other expenses that come to the fore when you have children. Again I ask, can you afford NOT to call 7th Level Mortgage TODAY???