Clients are still walking into Ed Conarchy’s office with mortgage rates they got a few years ago at 6.5 percent, 7.75 percent and higher. They finally found the time, energy and gumption to refinance, and many are saving some big bucks in the process.
Interest rates dropped in the third quarter of 2014 and continue to stay low allowing refinancers to enjoy some great deals, says Conarchy, mortgage advisor at Cherry Creek Mortgage Co., in Gurnee, Ill.
In fact, the Mortgage Bankers Association said it’s seasonally adjusted index of refinancing applications jumped 13.2 percent.
Current Rates are Lowest of 2014
Refinancing rates on 30-year fixed–rate mortgages dropped below 4.0 percent. Fifteen-year and adjusted rate mortgages (ARM) are near 3 percent. Of course, those are rates that are given to those with the best credit scores, with the right down payment and equity in their home.
“Just think of it simply. If you have a 6.5 percent interest rate on your current mortgage, and you are going to go down to a 4.5 percent interest rate on a $250,000 loan, you take that 2 percent multiplied by the loan. That will save you approximately $5,000 a year in interest,” he says.
That’s the rule of thumb you can think about when you are deciding whether to refinance, Conarchy says.
“You don’t have to be math genius to understand the savings. And just think, when you compound that on a 30-year loan, it is amazing how much you will save,” he says.
Even if you just save a half percent on the interest rate, depending on how much you need to refinance, you can save between $75 to $200 on a monthly basis, Conarchy says.
If homeowners will be moving or selling their home in a few years, their best bet to refinance is with an ARM because they are very low and could save someone even more money.
“It is an amazing time to refinance. People should be locking in to these cheap interest rates because the feds say they will be going higher soon,” Conarchy says.
Refinancing is Not As Hard As Many Homeowners Believe
Sometimes, people are just procrastinators and don’t take the time to refinance. Others don’t think they are going to save a lot of money, and they think it’s going to be a lot of time and effort for not much results, he says. And sometimes, they just didn’t have enough equity built up in their home yet.
“Home values are a little better now, so some of them couldn’t refinance until now,” Conarchy says. “They couldn’t do anything because they didn’t have equity in their home. We have been a little bit better off with appraisals. They are higher than a couple of years ago. That offers opportunities for people that couldn’t refinance before.”
Conarchy also says that people are now saving big, too, because mortgage insurance is a lot cheaper than it was before the whole housing debacle. For those who don’t have 20 percent equity in their home, they will still need mortgage insurance. But the costs have fallen for that, and combined with a lower monthly payment, it’s a double savings whammy, he says.
Conarchy, who is also a licensed investment advisor, tries to convince his clients to think holistically about their money decisions. He says that if they can free up that $400 a month in housing costs, then that $400 translates into $600 pre-taxed money and go into their retirement fund.
“That $600 earning 7 or 8 percent interest rate in a diversified stock/bond fund will grow and grow in 20 or 30 years. That is a huge number,” he says.
Conarchy likes to emphasize how low today’s 4 percent mortgage rate is compared to the cost of a loan in the early 1980s at 18 percent.
“That’s an amazing conversation starter,” he says.
Some people are hesitant to even start the refinancing process because they are afraid of how much work it is and time consuming.
“Refinancing is much easier than just getting a mortgage. There are fewer hands in the cookie jar. Basically, it’s us and the appraiser. On a purchase mortgage, there are two attorneys, two realtors, seller, buyer, home inspector and appraiser,” he says.
Conarchy’s company offers no fees on refinancing, which adds about ½ percent to the interest rate price.
“I’m a huge fan of the no-cost refinance. Clients don’t have to cover any fees. They are covered by us,” he says.