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For those of you who have a mortgage:
Rates have dropped to new all-time lows so you should lock in a rate to refinance your loan.
Wholesale rates are now below 3.0% for a 30-year fixed mortgage so that means retail rates at the most competitive institutions are now under 3.125% for a no-cost, 30-year mortgage for someone with 740+ credit and 20% equity.
Does a 3% Rate Make this a No-Brainer?
Provident is currently the cheapest of the large, low-cost lenders though they are tough and by-the-book so you’ll have to be totally buttoned up and prepare for a bit (I can explain more if needed here).
Is this worth your time? Yes. Going from even 4% to 3.25% saves you $15,000 in interest for every $100,000 of your mortgage over the 30 years of your loan.
For those of you that don’t have a mortgage:
Consider yourself lucky for having avoided the epic debacle that was the last ten years but also consider finding a way to enter the market. I think there is a good change that right now will be looked back upon as a once-in-a-lifetime opportunity, given the combination of bottoming prices, record low interest rates and the inflation we may likely experience at some point in the next 10-20 years.
There is no question that the costs-to-own have fallen below the costs-to-rent, at least in Chicago.
The better questions are down payment and personal. The latter is all about your personal preference and personal situation (ie: how long you are willing to commit to living in or at least owning the same place). The former, the down payment, is always the hardest part. But 30-year FHA mortgages that only require 3.5% down have interest rates in the threes, as well, though the APR may be above 4% because of FHA costs.
Let’s say you go FHA and put 5% down on a $200,000 home and get a 30-year mortgage at 3.5%, the real cost to you should be under $1,000 per month, which is outrageously good.
The rough math is that your mortgage payment would be about $850, $300 of which would go to pay down the balance and $550 of which was interest. You’d probably have a $2,000 to $2,400 property tax bill so call that $200 per month for taxes. Then you’d have assessments, if it was a condo. In a smart, well-run building, they’d be under $200 (mine are under $100) but let’s call it $200. If it was a house, you’d have other maintenance costs that would likely run similar. Then add in $50 for things like insurance and miscellaneous. The all-in cash outlay in this scenario is $1,300 but keep in mind that $300 is going essentially to you to pay down the balance and that the $750 for interest and taxes would get you up an a $9,000 annual tax break, depending on your tax situation, which would add $2,250 in savings, or almost $200 a month, at a 25% federal tax rate. With the full tax benefit, the real cost is about $800.
Also, I’m only using the first month math. It will get better every single month after that – same payment, less interest, more principal – because mortgage payments are amortized:
Also, if you don’t have a totally straightforward situation, be it the property, your personal life or your finances, that can make the process more complicated but not impossible. I’ve dealt with all three at times and usually have made it work. You just have to skip the cookie-cutter lowest-cost provider like Provident and go somewhere you will get a little more service and time from.
I enjoy this stuff so happy to dive into the specifics with any of you further in the comments!
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About the Author: Brad Wilson
Brad is the founder and Editor-in-Chief of Brad's Deals and author of Do More, Spend Less. He loves the game of hunting down the best deals and being able to spread the word to so many others. He is likely travel hacking his way around the world right now, trying to spend his millions of points and miles faster than he earns them!
I would be interested in refinancing. More details.
Hi Merrylynn, what specifically can I address?
not offered in New York. I called and confirmed.
What do you mean exactly?
My loan is at 4.50%…would it still pay to refi? Staying here & credit is excellent.
Big time! If you go from 4.5% to 3.0% you’ll save $1500 in the first year and over $30,000 over 30 years per $100,000 borrowed!
Is it a good idea to pay points?
Points are simply a bet on whether you will have the same loan for 30 years.
If you think you will move within 5-10 years or if you think rates may be even lower than they are now, don’t pay them. Otherwise, it will probably work out.
Thanks for the tips!!! I appreciate it very much.
My credit is a little wonky because I worked outside of the US since 2006 and now am in graduate school. Is that something you can work with? Via email, because I can’t answer my phone when I’m in class
Hi Brad! I am trying to purchase a home. My fiinances are in check but, I do have other issues to where I would not qualify for the easier, lower mortgage rate with a company like Prudential. If you could please inbox me on how I would go about getting financed with a lower credit score. Do you know any specific companies within the state of Georgia that would suit my needs? Thanks in advance!
Looking at refi rates right now – great credit score – which company offers the best?
Hi Jim, I referenced Provident above because they came out first for me most times but it ultimately depends on your state, property and other details.
One thing I can almost guarantee you is that the lowest rate will not be at a big money-center bank (Chase, Bofa, Citi, Wells Fargo, US Bank)!
I’d find a big low-cost Provider (Provident or First Internet Bank are among those) or a good broker.
http://www.firstib.com/mortgage/index.php
Would it make sense to “pre-qualify”? I don’t even really know what that means… I’ve been half-heartedly looking at homes for a while where we rent (Loudoun county, VA–very expensive). Not sure if the cost-to-own and cost-to-rent comparisons are like in Chicago where it makes sense to look into buying now. I have excellent credit and assets, including rental properties, but am self-employed. Husband is employed but has personal debt (not marital) and poor credit rating. I would like to buy on my own, if possible… Would getting pre-qualified make sense and what would be the advantages and disadvantages? Many thanks!
Your initial skepticism is right. Prequalified usually doesn’t mean too much, whereas the actual underwriting process is usually unnecessarily difficult, at least these days.
They aren’t really looking at assets right now, beyond what you’d need for the down payment and a small cushion beyond that. If you can prove your self-employment income via two years of tax returns, and you have the credit, you should be fine!
If you’re worried about wasting your time getting a home under contract, I’d just push your mortgage person to send your tax returns to one of their underwriters to try and get some light confirmation that you’ll make it through.