Refinancing? Get All The Facts.
The Feds dropped the prime rate yesterday. Does this mean long term rates are coming down? The prime rate does not equate to an equal drop in long term rates. However, when the prime rate goes down it is indicative of negativity in the market generally speaking. So long term rates could see some reaction.
What I want to write about today is how lower long term rates kick start a refinance market, even if the rates are marginally lower. When we see long term rates come down some lenders, particularly the larger ones will start marketing with a vengeance. Consumers will get mailers and phone calls offering outlandish lower rates. The small print will explain how one can get those rates, or an application will result in a totally different rate.
Lower rates do trigger a refinance market, however, how much of a benefit must be carefully analyzed. . I have had two clients contact me recently who were offered a refinance, one tapped into $6000 in equity and another $9000. The monthly savings was a paltry $60/month in one case. If it takes 100 months to break even it just might not be the right time to refinance.
Beware of offers too good to be true. If you are offered a lower rate be conscious of all the costs and calculate the break even point. Professional sales people will often promote a no closing costs refinance when in realty they are simply increasing the balance owed to absorb those costs. Financing closing costs is very common but financing thousands to get a lower rate should be carefully weighed. If closing costs are simply rolled into the loan amount they are still closing costs.
When considering a refinance weigh the reason, the benefits and the costs. There are many reasons to refinance. There is only one way to go about it - having all the facts.