Despite mortgage rates hitting historic lows during the last year, many homeowners still haven’t considered refinancing their mortgage.
Refinancing essentially means replacing an existing mortgage with a new mortgage loan that has new terms and, potentially, a lower interest rate. Homeowners in lower-income brackets may be convinced they won’t qualify for refinancing because of high debt compared to income, poor credit scores or lack of savings to cover closing costs.
However, new refinancing options are available to help make monthly housing payments more affordable. Fannie Mae, which helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of people in America, recently released RefiNow, an option that makes it easier for lenders to help eligible homeowners earning at or below 80% of the area median income refinance at a lower interest rate and reduce their monthly mortgage payment.
“Lower-income borrowers typically refinance at a slower pace than high-income borrowers,” says Katrina Jones, vice president of Racial Equity, Strategy & Impact at Fannie Mae. “Especially for those who have a high- or adjustable-interest rate loan, refinancing may help make housing costs more affordable and sustainable by lowering their mortgage payments, reducing the total amount of interest paid over the life of the loan or providing more stable monthly mortgage payments.”
The new RefiNow option requires that eligible homeowners achieve a savings of at least $50 in their monthly mortgage payment, but they can potentially save up to $100–$250 per month, according to the Federal Housing Finance Agency. It also offers savings on up-front, out-of-pocket appraisal expenses up to $500.
“We can put money-saving refinance options in reach for more homeowners by removing some perceived barriers, such as appraisal costs, to improve affordability and promote sustainable homeownership,” says Jones.
She provides three reasons to consider refinancing now:
- Interest rates are low. Mortgage rates remain low, despite moderate increases. According to Fannie Mae research, experts expect the 30-year fixed mortgage rate to average 3% through 2021, before beginning to rise in 2022. The takeaway for homeowners: There’s still time to consider refinancing.
- Lower your monthly mortgage payments. Refinancing at a lower interest rate may help decrease monthly mortgage payments, which could increase monthly savings. Refinancing may also help reduce the total amount of interest paid over the life of the loan, depending on the terms of the new loan and the existing loan.
- Getting started is a phone call away. Homeowners should contact several mortgage lenders to discuss refinance options to find the best option and terms for their situation. Always compare offers and shop around.
Homeowners wondering if refinancing makes financial sense can access Fannie Mae’s Refinance Calculator and learn more about refinancing options at KnowYourOptions.com.