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Is Now a Good Time to Refinance Your Mortgage?

If you’re wondering if now is a good time to refinance your mortgage, let’s take a look at the current economy, home values and interest rates.

While the current state of the economy might be unpredictable, the housing and jobs markets are “booming,” according to economist Mike Fratantoni at the Mortgage Bankers Association.1 Interest rates have been inching up and may continue, but they’re still at historic lows, according to a 50-year overview by Rocket Mortgage.2

Why Refinance Now?

The number of borrowers refinancing their mortgages has dropped to its lowest point since June 2021, according to real estate data analytics firm Black Knight,3 and with rates possibly rising again in 2022, some people who recently bought homes might not see the benefits of refinancing. However, homeowners who refinance sooner rather than later could lower their interest rates and possibly their monthly payments.

Mortgage Refinance, The Basics Explained

A simple definition of refinancing is getting a new mortgage to replace the existing mortgage. You may want to refinance because you’d like to:

  • Lower your monthly payments and interest rate
  • Shift from an adjustable-rate mortgage (ARM) to one with a fixed rate
  • Shorten your term to pay off the loan more quickly and avoid paying more interest, or extend it for lower monthly payments
  • Take advantage of historically low rates due to this unprecedented economic climate
  • Get money from the equity in your home to pay for renovations or consolidate other debts

What types of refinancing are available? Here are three mortgage refinancing options:

  • Rate-and-term: A change of the mortgage rate, loan term or both
  • Cash-out: An increase in the amount borrowed, which gives you additional cash flow and a safety net for the unpredictable
  • Cash-in: Pay more on your loan to secure a lower rate, shorter term or both

Here’s what you should take into consideration before taking the mortgage refi plunge during an unpredictable economy.

Help Your Lender Help You

To help alleviate delays in your refi process, be prepared and responsive. Lenders may be overwhelmed by demand, so you may experience delays. First, shop around, compare rates and commit to a single lender. If you’re trying to juggle multiple applications, you’re slowing down the process, which can turn you into a poor candidate. Next, gather all necessary paperwork, such as:

  • Tax returns, W-2 forms and/or pay stubs as proof of income
  • Copies of homeowners and title insurance
  • Copies of identification such as your driver’s license, proof of citizenship or U.S. residency status
  • Bank or brokerage statements to show assets, and other financial documents
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Tip: Log every type of communication including emails, phone conversations, letters, etc. These can help prove that you were doing your part to move the process along efficiently.

Savings Matter, But Costs Matter Too

As you calculate how much you’re going to save, keep in mind that you may have to pay refinancing fees. Typically, refinancing can cost 2-6% of your loan amount, depending on factors like your loan size, credit score, and mortgage type and term.

Potential refinancing fees to discuss with your lender could include:

  • Application
  • Origination
  • Credit report
  • Home appraisal

Other fees may include flood certification, title search and insurance, and recording and reconveyance as part of the overall costs to refinance. Keep in mind, if you have a good credit score and competitive rates on hand, you could have the leverage to negotiate some fees.

Final Tips and Good-To-Knows

Here’s what to consider as you weigh the pros and cons of refinancing:

  • Paying mortgage (or discount) points can help you save on your loan. This means you’re paying interest in advance to lock in a lower rate.
  • Refinancing is worthwhile if you plan to stay in your home long enough to see the savings. You can calculate your break-even point by dividing your closing costs by monthly interest savings — beyond that point you’ll start benefitting from the lower payment.
  • Repeatedly refinancing may cause more harm than good. By refinancing often, costs can negate the savings and you may end up paying more interest because of the loan extension.
  • Be intentional with your monthly savings. If the goal is to lower your monthly payments or get a cash-out refi, have you thought about what you’ll do? During this economic uncertainty, you may want to be strategic about what to do with the extra cash in your pocket.

If you think this is a good time to refinance your mortgage, find a lender you can trust and talk to them about any questions or concerns you have. Define Mortgage Solutions, a subsidiary of Desert Financial, can go over your refinancing options and assist you through the process.

Considering Refinancing?

Learn More

1https://www.bankrate.com/mortgages/analysis/
2https://www.rocketmortgage.com/learn/historical-mortgage-rates-30-year-fixed /
3https://www.blackknightinc.com/black-knights-october-2021-originations-market-monitor/ /
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The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.