March 28, 2023 | By RGR Marketing Blog

What to Tell Your Clients About Refinancing This Year

buy Mortgage LeadsAfter more than a decade of record lows, in 2022, mortgage rates increased at one of the fastest paces on record. Within a 12-month period the rates nearly doubled, thus kicking a lot of homeowners out of the refinance market.

So, what kind of impact will this have on those who want to refinance in 2023? With mortgage rates showing signs of stabilizing as 2022 closed out, will refinancing your home mortgage this year be a wise move?

Refinancing Can Help You Clear Up Your Post-Covid Debt

The Covid-19 pandemic not only cost over a million Americans their lives, but it caused a lot of households to accrue massive amounts of debt. Refinancing your mortgage in 2023 can be an effective way to help reduce that debt. Whether you have a high interest personal loan, a student loan, or a home loan with a high interest rate, refinancing can save you money both in the short-term and over the life of your mortgage. You can even reduce the term of your mortgage so that you put the money you save to better use elsewhere.

Refinancing Can Help You Get Rid of Private Mortgage Insurance

If you have finally reached the point that you have 20 percent or more equity in your home, then you can refinance in 2023 and get a new loan minus the private mortgage insurance cost that was previously attached to your monthly payment. This change alone can help save you anywhere from 0.58% to 1.86% of your original loan amount per year, which could amount to a savings of up to $3,000 per year on a $300,000 home.

Refinancing Can Help You Own Your Home Sooner

Refinancing into a shorter-term mortgage will help you pay your home off faster than if you choose to stick with your current term loan. Depending on your interest rate, you could wind up with a slightly higher monthly payment due to the shorter payoff period, but it will save you money over the long run because you won’t be paying interest for however many additional years your current loan has.

Refinancing is a Wise Move if Your Current Rate is at Least 1% Higher Than the Current Rate

When mortgage rates fell to historic lows during the height of the coronavirus pandemic in 2020, many homeowners took advantage to refinance their existing mortgages. And while the rates are higher now than they were then, there is still an opportunity for eligible borrowers to secure an interest rate that’s low enough to provide them with sizable savings.

It is an unspoken rule of thumb that homeowners should only refinance if they can drop their existing interest rate by a full percentage point. So, if you have an interest rate that is 1% or higher than the current rate, and you meet all other refinance qualifications, such as having a good credit history, then it might be a wise move to refinance in 2023. After all, with inflation always lurking in the background and talk of a coming recession, it is anybody’s guess where mortgage interest rates will be by the time 2024 comes knocking.

That single percentage point rule is not mandatory, however. If you have a higher rate than what's currently being offered and want to save everything you can then it still may be worth acting. Every dollar counts. Just note that when you refinance you'll have to close on your home all over again – and that includes paying for closing costs. So if you're not planning on staying in your home long enough to recoup the expenses from closing on a refinance, then it may not be worth it.

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