Interest rates are at historic lows. Should you refinance?
It's been a busy few weeks for mortgage bankers and brokers, who tell us they've been "flooded" with calls from condo and co-op owners looking to refinance and take advantage of historically low interest rates post-Brexit. At the moment, rates for a 30-year-fixed are at 3.52 percent, down a quarter of a point compared to just a month ago.
"I've never seen it this low," says Zack Tolmie of GuaranteedRate. "Rates are better now than earlier this year due to Brexit, lower-than-expected jobs numbers from the May jobs report" and more. "Overall, there's a lot of uncertainty in the global market," he says. "The likelihood that rates will go up outweighs the likelihood that they’ll go lower," he says which is making people want to lock in their new rates ASAP.
"With rates being incredibly low, it would certainly make sense to refinance," says Robbie Gendels of National Cooperative Bank (a Brick sponsor). Gendels says she's been receiving a lot of calls from people looking to finance for the first time and to refinance.
And even some apartment owners who refinanced very recently are doing so once more. Tolmie is working with one client who refinanced in December 2015 (at a rate of 3.75 percent) and in in the process again (now at a rate of 3.25 percent). He will save about $60 per month. "Total closing costs are about $3,000 which he is rolling into the loan. Because he’s not paying closing costs out of pocket, he sees the savings immediately without affecting his bank balances, and he’ll recoup the cost of refinancing in four years," says Tolmie.
Experts say when someone last refinanced has no bearing on whether they should do it again, What does matter, according to Rolan Shnayder, of Citizens Bank: "How long it'll take to recoup the closing costs." Closing costs are higher in a co-op than a condo because you have to pay title fees and mortgages in a condo. (You can, in fact, avoid paying the entire mortgage tax again on a condo or a single-family home refinance, by doing a CEMA, or mortgage tax assignment, says Tolmie. But it can take months.)
When refinancing even for a co-op, there are fees to consider, says Gendels, namely bank fees, attorney fees and appraisal fees. "The board also has to sign a recognition agreement," says Gendels. While "each building has different rules, some co-op boards require you to go in front of the board again. ... Check on the rules and procedures ahead of time," she says.
Also, issues like how long you plan to stay in your home, your credit score (since it affects your interest rate), and the balance on your current mortgage all matter, says Shnayder.
To decide to refinance or not to refinance, talk to CPA, mortgage broker and financial advisor. Here, more tips from the experts:
- It doesn't pay to be loyal. You can shop around for a bank with the best interest rate, just like you did when you first got your mortgage. "Now can be an opportunity to shop around even more, since you don't have the same time pressure as when you first bought the apartment," says Tolmie.
- Do the math. "When I evaluate whether it makes sense to refinance, I figure out how much interest they’ll save and subtract closing costs," says Tolmie. "You can find out the ‘break even’ point by dividing the cost to refinance by the monthly savings. This is how many months it will take to recoup the cost of refinancing in the first place."
- If you're planning on moving soon, it may not make sense. It usually takes at least a few years to pay off the closing costs you incur.
- You can move on the refi quickly. The rate can be locked in right away, and the entire refinancing process usually takes less than 60 days. Keep in mind that the summer can be a little slower, says Gendels.
- You've got options. There are three ways to pay the costs of a refi, says Tolmie: 1) Borrower pays the costs out of pocket, 2) Borrower pays the costs in the new loan amount (by taking a larger loan), 3) Bank provides a credit to pay for closing costs (but gives a higher interest rate to do so).
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