Signing a home purchase contract.
Despite everything that has gone on in 2020, the housing market has withstood most of its impact. After a brief freeze at the height of the pandemic, more people are buying homes as the end of the year comes closer. If they aren’t purchasing a piece of real estate, then they have decided to reduce the amount they pay on their current home.
They are doing this through refinancing mortgage programs. There are thousands of institutions across the U.S. that handle this.
So, should you refinance your home in 2020? The answer is a resounding yes. Here are a few reasons why.
Low-Interest Rates
After a brief period where interest rates began to climb, they returned to levels not seen since the Great Recession. This means homeowners can refinance their homes for a lower amount than they purchased it. Using a mortgage program to refinance your house you can save yourself thousands of dollars a year on your home.
As an example, homeowners can refinance a 30-year loan at 2.7 percent for a property valued at $300,000. Prior to the COVID-19 pandemic, these rates had ramped up closer to three percent. As usual, these numbers vary depending on elements like the home’s determined value and credit scores.
Change the Loan Duration
By refinancing a mortgage, the homeowner not only has the opportunity to lower their payments but can also change its duration. This can also benefit an individual and their bank account in the shorter term.
Though a majority of mortgages are of the 30-year variety, more homeowners have begun to realize a 15-year or even 10-year loan is better. While monthly payments are considerably larger, these individuals might be able to obtain lower interest rates. Thus, more of their payment goes toward the loan’s principle. This can help a homeowner feel financial freedom much faster.
Lack of Inventory
The downside to low-interest rates is those with available income continue to purchase homes. In turn, the inventory of existing and new properties is still low.
Even if they can get a better selling price for their home at this time, owners might not be able to find another one on the market that matches their budget. In the end, it’s better to hold off and refinance until the buyers’ market slows down or inventory increases.
Cash-Out Home Equity
A primary reason homeowners decide to refinance is to get some money out of it. During the loan process, the property is evaluated to determine its current value. In many areas across the country, the increase has been significant. Especially if the home is well-maintained and in a good area.
As a result, homeowners have been able to cash-out some that equity when they refinance. It definitely helps individuals hit hard by the events of 2020. It allows them to catch up on bills or perform needed renovations.
Preparation for a Future Sale
A refinance helps in the present and the future. With the lower interest rates, homeowners pay more toward the mortgage’s principal amount. In turn, it drops considerably in the remaining time they own the home.
When they’re ready to sell, they can receive a larger profit due to the lower value of the mortgage. This allows them to invest a bigger sum, more than the standard 20 percent, into the down payment of another home. This helps lower loan payments on the new property.
There are numerous reasons why you should refinance your home in 2020. The next step is to make it happen. You do this through research and patience.
Don’t sign up for the first refinance loan that’s advertised. Look at several financial institutions to see what they offer. Check if their rates are lower for homeowners with good credit scores. Also, see if they provide incentives for those who want to reduce the timeframe of their mortgage.
Before you apply for the refinance loan, take a look at your home, and make sure everything is in working order. Major deficiencies in look or operation can drive its value down. While you can still get a relatable interest rate, the amount of equity you get back might not be as much.
Overall, don’t rush things. The money or lower payments might be needed, but you shouldn’t get them at the expense of higher interest rates than what’s available.
