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Answer: There are a few indicators that this is a good time to do just that:

• Interest rates have continued to drop throughout the year and if you have not refinanced in the last year, you are likely paying more than the going rate.
• A new fee that will increase your cost to refinance begins Dec. 1. The Federal Housing Finance Agency issued a surcharge of a half percent of the total finance cost on each refinance. The average added cost to a refinance is $1,500.
• There is no way to predict how long these interest rates will hold. With the election next month, the market will react based on lender confidence. Anticipated changes in government policy and perceived confidence or lack thereof are always factors that influence rates immediately following an election.
• Many homeowners, who have been in their home for more than a few years, may have more equity in their home than they realize. It is possible to extract some of that equity in the refinance process. They often find that there is enough equity to pay down debt or complete home improvement projects. Their mortgage balance goes up in many cases, but their monthly payment won’t due to the historically low interest rates.

Q: Is there any reason that I would not want to refinance?

A: To help determine the answer to that question, ask yourself, “will I be in the house long enough to make the closing and lender costs worthwhile?� Research the lender and closing costs to refinance and then determine how much time it would take to recoup those cost. How long would it take for the savings provided from a lower interest rate and resulting lower mortgage payment to cover lender and closing costs? These costs are not hard to calculate as they are required by federal mortgage laws to be available to the buyer. If you will be in the home long enough to cover the lender and closing costs with the reduced mortgage payment, then it is worth it to move ahead. If you don’t plan on being in the house long enough to recoup the cost and will only be saving on the monthly fee, then it doesn’t make sense to refinance. Homeowners may find a mortgage company offering no up-front fees. This can be very tempting and can make sense if the closing costs don’t offset the benefit of the offered rate.

Q: I have never refinanced a home before, what should I expect?

A: An appraisal is where the process usually starts. The worth of the home must be determined by the lender to ensure that the market value of the home supports the loan and is in a main qualification for refinancing. However, with the extraordinary precautions in place for COVID-19, it is now a common practice for the lender to rely on the estimated value of the area without an appraisal. Perkins estimates that only 1 home in 3 is required to have an appraisal at this point in time. If an appraisal will be required to determine a home’s value, consideration will be given to recent sales in the neighborhood. With a required appraisal, it would be a good idea to wait until there have been homes that have sold for a fair value in your area. A neighborhood with homes that have not sold in the last six months, have pending but not closed sales, or sold undervalue for some reason can all contribute to a disappointing appraisal. Documentation that will need to be submitted includes W-2’s for the last two years; tax returns for those who are self-employed; and bank statements.

So, if you haven’t refinanced in the last year or more, now is a good time to think it over while interest rates are low and before the FHFA surcharge begins in December. And remember, underwriters are swamped requiring longer processing time. Make sure your lender locks the current rate to guarantee that you get the interest rate you are anticipating.