We are currently seeing historically low interest rates, but there are still some homeowners out there who aren’t interested in refinancing and taking advantage of these low rates. Why wouldn’t you decrease your interest rate instead of settling for 4.25%?
For some, this might sound strange. Million of Americans have looked to refinance existing home loans to take advantage of these historically low interest rates. At the time of writing this blog, the average 30-year fixed mortgage for a primary residence (homestead) is around 2.875%. We have even seen rates for investment properties as low as 3.5%, which is amazing. Any financial analyst will tell you, take advantage of these low rates before they go away.
So, why is it some homeowners are hesitant or uninterested in jumping on these low rate opportunities? It’s simple – many homeowners are simply content with their current rates. Homeowners who obtained mortgages over the past 5 years have already closed on mortgages with low interest rates, compared to the lifetime history of the mortgage. Homeowners with 30 year fixed mortgages at 4.25% are perfectly content with their rates, and see the refinance opportunity as just something to kick down the street.
Here are some of the things we’ve heard homeowners say as to why they don’t want to refinance and take advantage of lower rates:
“It’s too much work.”
“My payment is good enough.”
“I don’t want to reset my loan back to a 30 year term.”
“I don’t want to go through a whole new loan application process just to save $150 per month.”
On the surface, those might sound like satisfactory assessments. Not everyone will be motivated to save $150 per month.
But when you look at it from a different perspective, you might see why you should jump on these low mortgage rates. For example:
Let’s take an easy example of a 30 –year fixed mortgage of $200,000 at 4.25%, with 25 years left until payoff. Principle and Interest on this loan would be $984/month, and the total dollar amount paid over the course of 25 years would equal $295,000. Not bad.
Now let’s compare a 30-year fixed mortgage of $200,000 at 2.875% started at square one, with the full 30 years. Principle and Interest is lowered to $830/month, which compared to our first example gives us a saving of $154/month. Now let’s say you take the extra savings of $154, and instead of just throwing it in your bank account, you use that money each month to pay down the principle of your mortgage.
What essentially happens is you pay off that mortgage in 23 years, not 25. The total interest you save by lowering your rate and using the savings to make additional principle payments towards your mortgage results in a total savings of $20,537.54. Now, that refinance looks pretty sweet, doesn’t it?
If you’re looking to refinance or simply understand your best options for your home loan or even your investment properties, call us at Blink and we’ll walk you through the process and the numbers. Sometimes it’s easier to have someone to talk through the numbers with, and that’s what we’re here for.
The Moral Of The Story: Don’t be satisfied with 4.25%.
