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Rush to refinance is on - should you?

Borrowers are shaving hundreds of dollars off monthly payments, thousands off life of loan

SAN ANTONIO – Thanks to good timing, John Andrade now has the cash to fix up his family’s Windcrest home. He had already started the ball rolling on refinancing his mortgage when rates sank into the basement.

“We hit right at three percent," he said.

And, that’s on a 30-year loan.

“We’re saving hundreds a month on our mortgage payment and we’re able to get cash back to do projects around the house or to just save."

A record low on average 30-year fixed mortgage: 3.29%

He’s hardly alone. Refinancing applications have gone through the roof since March as borrowers take advantage of relatively cheap money. During the biggest spike, applications were up 200% over a year ago.

“The amount of refinancing coming in now has been a little over 60% of our production,” said Scott Caroselli, loan originator at PrimeLending.

Rates have fluctuated around historic lows - 3 to 3.6% for 30-year loans and even down to 2.5% for 15-year loans at one point.

By locking in lower rates, borrowers are shaving hundreds of dollars off their monthly bills. And, by chopping years off the length of a loan, they can save significantly more over the long term.

“By lowering the term, that’s where you see true savings. That’s when you’re building wealth in your property because even though the payment may not change much, the amount you put toward the principal goes up considerably, where over a 15-year or 10-year period, people can save tens of thousands and even hundred of thousands of dollars, depending on the size of the loan."

So, who should consider a refinance?

“I would say if you are at an interest rate at 4.5% or higher, you should seriously consider a refinance,” Caroselli said. That’s depending on how many years remain on the loan.

Borrowers can expect the lending process to move a little more slowly as lenders deal with a crush of new applications. Appraisals may also take a bit longer. And, then there’s the impact on the economy that rising unemployment is having on the ease of lending.

“Because of Covid-19, lenders are more strict now,” Caroselli said. “Credit score requirements have gone up considerably.”

Lenders may also require more money in reserves to protect from economic uncertainty.

For Andrade, though, the process was quick, easier than he expected, and well worth it.

“It just made sense to do it,” he said.

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