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Why Refinance Back into a 30-Year Loan?
One of the biggest reasons homeowners refinance their mortgage is to obtain a lower interest rate and lower monthly payments. By refinancing, the borrower pays off their existing mortgage and replaces it with a new one. This can often be accomplished with a no-points no-fees loan program, which essentially means at "no cost" to the borrower.
In the no-points no-fees scenario, the mortgage consultant uses rebate monies paid by the lender to pay off non-recurring closing costs for the borrower. These are "one time" fees such as escrow or attorney fees, title insurance, document preparation, tax service, flood certification, processing and underwriting fees, etc. The borrower is still responsible for recurring fees such as interim insurance, property taxes or insurance policy payments.
Refinancing typically occurs when mortgage interest rates drop significantly, but borrowers with recently improved credit scores (from paying off credit card debt, making mortgage payments on time, etc.) are often candidates for better interest rates as well. If you haven't checked your credit score in a while, it's a good time to call a mortgage consultant.
The question most asked is, "But why should I go back into a 30-year loan?"
There are two schools of thought on this subject, and the mortgage consultant should work hand-in-hand with the borrower's financial planner to determine what works best for their mutual client.
One option is to take the route of the "same payment" refinance, and actually pay off the loan faster and save money on interest fees in the long-run. If refinancing results in a lower monthly payment, the borrower can still continue making the same payment they made in the original loan, and the extra money will be applied to the principal balance.
For example: Let's say you have 25 years remaining in your current loan, and you refinance back to a 30-year loan with a slightly lower interest rate, resulting in a payment reduction of $200 per month. (Note: This is just an example. The actual amount could vary.) You could then take that extra $200 per month and apply it toward the principal on the new loan. At this rate, the loan will be paid off in 22 years and 4 months, which is 2 years and 8 months less than the original loan.
On the other hand, if the borrower's financial planner is a proponent of best-selling author and investment guru Douglas Andrew's philosophies (see Missed Fortune), he or she may suggest investing the extra money in a side-fund that could earn a better rate of return and grow to the amount of the mortgage (and beyond) in even less time. This method provides excellent liquidity, but having more direct access to this money may be too tempting for some homeowners.
Regardless of the reason for the refinance, the mortgage consultant will need to know what the existing loan scenario entails, review the homeowner's long-term goals, and provide a comprehensive spreadsheet that compares and contrasts the various loan programs available. Bear in mind, refinancing to obtain a lower interest payment could also result in a lower deduction at tax time. The homeowner's mortgage consultant and financial planner should work hand-in-hand with their mutual client's best interest in mind.
MORE RESOURCES updated Fri. December / 04 / 2020
A record 19.4 million homeowners can now save big on a mortgage refinance, as rates hit another new low - CNBC
A record 19.4 million homeowners can now save big on a mortgage refinance, as rates hit another new low CNBC
Today’s mortgage refinance rates keep sinking, reaching 37-day low | November 13, 2020 - Fox Business
Refinancing your mortgage? Don’t make this mistake Fox Business
Today's mortgage refinance rates stay at 30-day low as final votes are tallied | November 6, 2020 - Fox Business
Today's mortgage refinance rates stay at 30-day low as final votes are tallied | November 6, 2020 Fox Business
Today's mortgage refinance rates rise as votes continue to be tallied | November 4, 2020 - Fox Business
Today's mortgage refinance rates rise as votes continue to be tallied | November 4, 2020 Fox Business
What to do with your mortgage refinance savings Bankrate.com
The formula I used to decide on refinancing my mortgage Business Insider
Your Mortgage: Even Santa is refinancing Shawnee Mission Post
Will mortgage rates rise or fall in December? Bankrate.com
10 Ways to Lower Your Mortgage Rate The Motley Fool
Loan-to-value ratio: What is it, and how does it affect refinancing? Business Insider
Mortgage Rates Today, Nov. 28 & Rate Forecast For Next Week The Mortgage Reports
Galvin warns Mass. homeowners of looming refinance fee Boston News, Weather, Sports | WHDH 7News
Should You Refinance Your FHA Loan? Credible News
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Today's mortgage refinance rates mixed — one key rate drops while two inch upward | October 22, 2020 - Fox Business
Today's mortgage refinance rates mixed — one key rate drops while two inch upward | October 22, 2020 Fox Business
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4 ways to get lower mortgage refinance rates Fox Business
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Today's mortgage refinance rates hold steady at unprecedented lows | October 16, 2020 - Fox Business
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Today's mortgage refinance rates stay low with the election underway | November 3, 2020 - Fox Business
Today's mortgage refinance rates stay low with the election underway | November 3, 2020 Fox Business
How to get a low-cost mortgage refinance Bankrate.com
How to Refinance Your Home | Home Lending Chase News & Stories
When should you refinance your mortgage? Fox Business
How often can you refinance your mortgage? Fox Business
Today's mortgage refinance rates crawl upward — two rates rise from unprecedented lows | October 21, 2020 - Fox Business
Today's mortgage refinance rates crawl upward — two rates rise from unprecedented lows | October 21, 2020 Fox Business
How does mortgage refinancing work? Bankrate.com
Mortgage refinancing will be 0.5% more expensive, Fannie Mae and Freddie Mac to raise fees - USA TODAY
Mortgage refinancing will be 0.5% more expensive, Fannie Mae and Freddie Mac to raise fees USA TODAY
A record number of borrowers can now save on a mortgage refinance, as rates set another historic low - CNBC
A record number of borrowers can now save on a mortgage refinance, as rates set another historic low CNBC
Mortgage Refinancing Rates Heading Higher ThinkAdvisor
Can I Refinance My Mortgage With Bad Credit? NextAdvisor
Don't let mortgage rates distract you. You should also consider this when refinancing - Fox Business
Mortgage and refinance rates today, September 29, 2020 | Mortgage Rates, Mortgage News and Strategy - The Mortgage Reports
Mortgage and refinance rates today, September 29, 2020 | Mortgage Rates, Mortgage News and Strategy The Mortgage Reports
How to refinance your mortgage without closing costs Fox Business