As the COVID-19 pandemic continues to affect economies around the world, mortgage interest rates are falling to almost historic lows. Indeed, in an effort to stimulate the housing sector and encourage people to keep buying homes, the Federal Reserve cut interest rates a few months ago, with mortgage rates following soon after. So, if you’re one of the many Americans burdened with an expensive mortgage, now could be an opportune moment for you to refinance and save a significant chunk of money.
However, it is important to be realistic about your financial circumstances and ensure that you fulfill current lending requirements, many of which are incredibly stringent. In order to secure a refinance that actually saves money, you will need to prove that you earn a steady income and have a relatively clear financial history. If you’re wondering whether now represents a good time to refinance, we’ve assembled some pros and cons below to help you assess the complex financial situation we are currently living through.
Why It Might Make Sense To Refinance
If you are reasonably financially stable and it appears that you won’t be made redundant any time soon, refinancing could be an excellent option. This is because securing a mortgage with a low interest rate will help to reduce your monthly payments and boost your disposable income. What’s more, you could end up moving from an adjustable rate to a fixed rate, providing you with a more stable and predictable financial future. You could also shorten your mortgage terms in order to pay it off sooner or even eliminate the need for private mortgage insurance (PMI), saving yourself even more money in the long term.
Situations In Which It May Not Be A Good Time To Refinance
Despite the many perks of refinancing in today’s economic environment, it doesn’t make sense for everyone. Here are a few reasons why you may want to think twice about refinancing:
1. The Uncertainty Of The Jobs Market
Although refinancing may help to decrease how much your home loan costs in the long term, it could be problematic if you lose your primary source of income over the coming months or years. This is because it often takes a few years to recover the costs of refinancing such as mortgage closing fees and loan origination fees. Losing your job in the current climate could mean you have to sell your home or even face foreclosure, and refinancing will only add to your debts.
2. A Poor Credit Score
If your credit score has declined since you took out your mortgage, you may not qualify for the low interest rates currently on offer. If your score has dropped dramatically and you are unable to refinance, however, it is worth noting that there are things you can do to address this such as paying off credit card debts or your student loan.
3. An Unstable Job History
It is important that you demonstrate a capacity to keep earning if you want to refinance. This means that an inconsistent career history will likely not work in your favor. This is particularly true now that lenders are getting stricter about who they grant mortgages to.
Seek help with your mortgage today!
If you need help working out whether refinancing is a smart option for you, get in touch with First Lenders today. One of our team members will be delighted to take your call.