Fall Home & Car Care: Mortgage refinancing can save money in the long run

By Bob Steenson, bsteenson@charlescitypress.com

For folks looking to save some money on their mortgage or looking for other mortgage options, this may be the time to look into refinancing.

Mortgage interest rates have been fluctuating recently, but remain at historically low levels, according to a report by The Associated Press last week.

Mortgage buyer Freddie Mac said last Thursday the rate on the 30-year, fixed-rate mortgage was 3.56% last week. Average rates on the benchmark loan have remained below 3.6% for four straight weeks — the first time that’s happened since the fourth quarter of 2016.

The average rate for 15-year, fixed-rate home loans was 3.09% last week.

A year ago, the 30-year rate stood at 4.6%.

Locally, it’s been a busy time for refinancing.

“I would say starting the end of August and this whole month people have definitely been taking advantage of the lower rates and trying to refinance or to complete home improvement projects, whether it be roofs, siding, remodeling inside, before it gets to be winter,” said Ryan Venz, AVP and real estate lending officer with First Citizens Bank in Charles City.

“Just in this past year we’ve seen over a percent drop in rates, and sometimes more depending on the day,” Venz said.
Refinancing can accomplish a couple of things, he said.

Moving to a lower interest rate can reduce your monthly mortgage payment, and the total amount of interest money paid over the life of the loan.

It may reduce the monthly payment to a level where the homeowner can afford to refinance for a shorter term, for example moving from a 30-year loan to a 15-year loan. That will really save interest costs, Venz said.

“Paying your mortgage is just one of those things that is done. It’s kind of out of sight, out of mind,” he said. “You just keep doing what you’re doing and not thinking, what’s that rate at? Could we be getting something better to get some payment relief or to shorten up our payment stream so we don’t have to pay this for 30 years? Maybe we can get it done in 20 years.

“If your budget allows, you can save thousands of dollars by whittling off 15 years of interest. That’s pretty obvious,” Venz said.

On Wednesday, the Federal Reserve cut interest rates by 0.25 of a percentage point in another bid by the central bank to help maintain U.S. economic growth, according to The Associated Press. That should continue the downward pressure on mortgage rates.

The Fed had lowered its benchmark interest rate in July by a quarter point, its first cut in a decade.

Venz said a common benchmark for refinancing is when you can save at least a percentage point on your current rate. Other factors are the amount of the loan, whether your credit situation has changed and the length of time you plan to remain in your home.

“A lot of times I think the misconception is that the closing costs or the costs that go into it maybe are too large on the front end,” Venz said. “But those closing costs can be far outweighed several times in what you’d be saving in interest in the long run.”

The right lender can go through those costs and address the borrowers’ concerns, he said.

“Once you see those numbers laid out in front of you it’s really eye-opening to see just how much interest you are truly saving. You start looking down the road — that’s money you can save to start doing other things in your life,” Venz said.

He said he can sit down with a borrower and go through the loan amortization schedule to show exactly where the point is where the upfront costs are covered by the reduced payment savings.

“We try to go out and say, OK, after ‘X’ period of years, this is what it’s gonna be to get you to break even,” Venz said. Every year after that is saving the borrower money.

Another purpose for refinancing can be to get some money out of the equity a homeowner has.

A cash-out refinance can make money available for expenses like home improvement projects or to consolidate other debt.
Debt consolidation might make sense if the borrower can go from high interest payments, for example, on credit card debt, to the lower interest rate on a mortgage, Venz said, but that can also be a danger for someone who has trouble managing credit.

“We like to say that we have a credit-card cutting-up ceremony so there’s not that risk of getting right back to the same position they were,” he said. “It’s all about trying to build their knowledge so the customer is making good decisions.”

Whether to refinance and get cash out for a home improvement project or to take out a home equity loan can also depend on a number of factors, Venz said.

“The biggest thing I look at is what are the payments going to be. For some people it’s better to do a refinance because, No. 1, they get the cash out that they need and they have all one payment, and you’re amortizing that over a longer period of time,” he said.

For home improvement projects that will likely last the life of the home that can make sense.

But if you already have a very low interest rate on your mortgage, it might make more sense to do a home equity loan for improvements.

“It really comes down to what’s best for the customer, interest-rate-wise and budget-wise, to make sure that it fits into their budget and into our debt-to-income-ratio guidelines, too,” Venz said.

He advised people who are wondering if refinancing would be a benefit to check it out.

“Honestly, the whole process for refinancing is very simple,” he said. “It’s definitely something to look at and see if you can benefit. I truly think a lot of times if you start running numbers it’s definitely going to be worth your while and you’re going to be happy that you did sit down and take the time to look through it,” Venz said.

“There’s no obligation, no cost,” he said. “We can sit down and talk for an hour and if you decide to move forward, great, and if not you can go home and think about it. It’s an open door policy and we want to help anyway we can to try to make it a good fit for their family and their budget.”