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SHOULD YOU CONSIDER REFINANCING?

Mortgage rates in August hit an 18-month low. The Federal Reserve has begun to lower the central bank rate for the first time in eight years. Inflation is very low and appears to be stable — this is all good news for mortgage rates.

Borrowers with excellent credit have seen quotes for 30-year fixed loans as low as 3.75% with no points. All other rate quotes are also lower for second homes, investment properties, VA loans and FHA loans.

So if you’ve been asking yourself whether you should consider refinancing, the answer is yes. Anyone holding a mortgage with a rate of 4.375% or higher should connect with a reputable lender to consider some important factors.

You’ll want to ask your mortgage lender how much you’ll save if you refinance, how much closing would cost, and how many months will it take to recoup these closing costs. Suppose that by refinancing, you can save $200 a month. Consider that the closing costs for the attorney, title insurance, appraisal, processing fee, and miscellaneous bits and pieces will add up to $2,400. The payback in this scenario is therefore 10 months. If the payback is less than 18 months, refinancing is considered a smart move. Payback in 24 months is on the edge. Payback in 36 months is probably too much for too little gain. This is why you need a reputable mortgage lender: It’s important to have a professional who is willing and able to clearly explain the costs and benefits of refinancing.

Because lenders are feeling somewhat aggressive at the moment, this may be a good time to take cash out of your property to pay off other debt. Again, spend some time doing a short analysis to see if doing this makes sense in your particular financial situation.

Finally, a warning: You probably have received many unsolicited letters, email offers and calls from lenders who do not know you. I was recently offered 2.99% from a lender in North Dakota to refinance. I was even offered a refinance by my own company. Both were scams. The materials looked like they came from my company, but the fine print told a completely different story. My advice is to not respond to someone you don’t know when they’re asking about financial matters.

Instead, try to get recommendations from people you know and trust who have had positive experiences with local mortgage lenders. Or look for a mortgage company that has won local awards for client service and client satisfaction. Most importantly, meet with the prospective mortgage lender and ask questions. He or she should be willing to spend 15-20 minutes listening to your details and offering information without pressuring you. This is the beginning of a great relationship between you and your mortgage lender.


DAVID CROWELLDAVID CROWELL IS REGIONAL MANAGER AND SENIOR LOAN OFFICER AT MORTGAGE NETWORK, WHICH HAS OFFICES ON HILTON HEAD ISLAND AND IN BLUFFTON.