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For many, home ownership represents the most significant financial commitment ever made in life. Over time, mortgage loan interest will likely add hundreds of thousands of dollars of expenses on top of the original purchase price.

For relief, intelligent savers should now consider mortgage refinancing. Long-term interest expense savings will most likely justify the up-front mortgage refinancing costs through the COVID-19 pandemic.

Mortgage Refinancing Mechanics

Mortgage refinancing describes the process of taking out a new mortgage loan to pay off your current mortgage. Here, our goal is to lock in lower interest and housing costs, instead of cashing out home equity.

Long-term homeowners may consider refinancing out of 30-year and into a 15-year fixed mortgages. Investors may also exchange adjustable-rate mortgages (ARMs) for fixed mortgages.

The Federal Reserve Board

Banks make overnight loans between themselves at the federal funds rate – so that each individual bank can meet its Federal Reserve requirements. For mortgage lending, banks charge a premium above the federal funds rate to compensate themselves for the heightened risks of dealing with consumers.

The Federal Reserve Board slashed interest rates to zero amid the COVID-19 pandemic to encourage lending, spending, and investing. Consumers should take advantage of historically low rates to refinance debt.

Mortgage Refinancing Costs

Mortgage refinancing costs may tally up between three and six percent of your outstanding principal. Up-front costs include loan application and origination fees.

Lastly, at closing, you will make out a cashier’s check to the title company for appraisal, inspection and title search fees. In some cases, the bank will demand pre-payment fees on your old mortgage – when cash money from the new mortgage pays off the old loan.

Strategy

Numerous online mortgage calculators are available to help you toggle through payment projections. Here, you may input different variables for interest rates, fees, and home loan duration.

Expect mortgage refinancing to generate significant savings, if you can lower your interest rate by at least one percent and plan to own your home for the next decade.

One thought on “Mortgage Refinancing

  1. editor says:

    This document provides an overview of mortgage refinancing, outlining its mechanics and benefits, especially in the context of the COVID-19 pandemic and the Federal Reserve Board’s interest rate policies. It describes the costs associated with refinancing, including loan application, origination fees, and other closing costs. The file suggests using online mortgage calculators for assessing refinancing’s viability and emphasizes the potential long-term savings if certain conditions, like a significant interest rate reduction, are met​​.

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