With spring upon us as Massachusetts emerges from one of the mildest winters in recent years, I have thought about how great the incentive has been the last several months to get up early and out onto the streets of Boston for a morning run. Similarly, when the question comes up whether to refinance in today’s real estate market, the incentive to do so is greater than it has been in years with mortgage rates at historic lows.
But, unlike the decision of whether to step out for a jog on a mild, albeit chilly, winter morning or sleep in an extra hour, the decision to refinance requires that you take a close look at – and evaluate – your goals and circumstances, the terms of your current loan, and – if refinancing looks possible – find the best lender for your situation.
For example, a friend of mine called me the other day and asked, “David, what’s all this chatter about refinancing now? I just did it a couple of years ago. Should I refinance again?” We talked for a bit about the particulars of his loan for his property in the South End of Boston, and quickly came to the conclusion that he wouldn’t really benefit from a refinance at this time. He already had a good, low rate fixed for 30 years. I didn’t think he could get a lower rate that would be worth the closing costs to refinance.
However, when he mentioned his second home in Provincetown, refinancing that home made perfect sense given the particulars of his current loan on the property.
His current mortgage on his second home happened to be a 5 year ARM at a rate higher than current 30 year fixed rates. Given he has no intention of selling his property in Provincetown for many years, he would benefit from refinancing with a lower interest rate fixed for 30 years.
Though interest rates are low now, and it DOES make sense for many people to refinance and possibly lock-in with a long-term fixed interest rate, there are additional variables you need to be aware of.
Jean Chatzky, financial editor for NBC’s Today Show, suggests you should consider refinancing if:
- Your interest rate is about 0.75 -1% above current rates.
- Your credit score is higher than 720. A good number, but I think as long as you don’t have any late payments on your current loan, we may be able to find you a lender that can accept a lower score if you’re willing to pay a slightly higher rate.
- You have greater than 20% equity in your property. Although this definitely helps, don’t think this will shut you out from getting approved, especially if your property is worth more than a 500K and located in Boston or Provincetown.
Ms. Chatzky also suggests it is a good time to lock in these rates with a long-term fixed rate mortgage rather than going with adjustable rate loans.
While I generally agree with Ms. Chatzky’s suggestions, the decision to refinance – and whether to go with a fixed or adjustable rate mortgage – ultimately depends on your goals and circumstances.
Given all these variables, some lenders are better for different people. As real estate attorneys, my team and I work with many lenders on a daily basis. We know the requirements of each lender. And we help our clients find the best fit without needing to contact the lender themselves.
So if you’re thinking about whether now is the time to refinance a property you own, and you want to bounce some ideas around, email me at firstname.lastname@example.org or call me at 617-357-9333, and let’s talk about your options and whether the time is right for you.
David M. Datz