Mortgage interest rates are at record lows. People are taking advantage of this big money saving opportunity. They are buying homes and refinancing mortgages too.

So the housing market is booming. And home sellers are cashing in at top dollar. The other day someone said, “If you want to sell – now is the time!” Because she sold her house quick for $12,000 above asking price. 

It’s no wonder some realtors are enjoying their best year ever. They are watching their inventory go quick and working hard to help buyers snag houses before they go on the market.

Why The Housing Market Is Booming In A Bad Economy

If you’re a homeowner, you’ve probably received all types of refinancing offers in the mail. I must say many of those offers look very attractive at first glance. Somehow they seem to know how much you owe, then the mailer shows you how much lower you could be paying with a mortgage refinance. 

Before Your Refinance

Are you thinking of refinancing your home to take advantage of low mortgage rates? A few things that you may want to consider are:

  • Your current interest rate. What are you paying now? How much are they offering you to refinance? You need to know the numbers to see if it’s worth the time and money to refinance. If you have 3.5% right now and they are offering you 3.25%. You may want to pass. They used to recommend at least 1% savings to get the most value of a refinance. But it really depends on your situation. There are some great refinance calculators to help you do the math and compare online. Here are a few, but you can find many others online: Bankrate and NerdWallet.
  • The terms. Sure, they may be offering rock bottom interest rates, but what’s it going to cost you? Do you have to pay for any points? What are the fees involved and how do they compare to other lenders? Bankrate.com is a great website to give you some insight into what lenders may be offering in your area. You can see rates and fee estimates instantly after you enter in some information.
  • Your situation. How long do you plan to be in your home? If you’re planning on relocating next year, then a refinance may not be worth it. How are your finances? To get approved to refinance your mortgage, the lender needs to review your finances now. This includes your current credit score, income, and any debts/assets to understand your current financial picture.
  • Be careful about the type of mortgage you choose. Two important points to consider:
    1. The Length of Your Mortgage. This could be a big mistake to refinance for the same exact term. For instance, say you initially took out a 30-year mortgage 10 years ago and your interest rate was 4.5%. You decide to refinance on another 30-year mortgage for 3.25%. If you do this, you may be saving 1.25% in interest, but you’re also starting the clock over adding another 10 years to your mortgage payoff plan. Instead of doing this, you’d benefit from a shorter (15-year) or more comparable (20-year) mortgage.
    2. The Mortgage Loan Type. While rates are at record lows, some financial institutions are trying to lure borrowers in with super low ARM deals. They don’t literally want your arm for a mortgage. An ARM is an adjustable rate mortgage. This means that you receive a guaranteed fixed interest rate for a specific time period. For example, a 5/1 ARM offers you a fixed, low rate for five fixed years. However, after that period your interest rate could change every year hence the name “adjustable.” 

      Depending on your financial goals, you may want to have a an ARM because you plan on paying it off in five years and you can’t beat that rate. Otherwise this would be a riskier option for other borrowers who may feel more comfortable with a low, fixed rate for the period of the loan.

In closing, you’ll have to do a cost benefit analysis to understand whether refinancing is right for you. Here are a few articles to help you:

Photo: The-Lane-Team