Refinancing a mortgage in Missouri (MO) can offer homeowners a chance to lower their interest rates and save thousands of dollars over the life of their loans.
Interest rates in 2008 were sitting around 6 percent or higher. When the financial crisis reached its peak, in 2012, median home values dropped to $121,00. This bust made it difficult for homeowners in Missouri to refinance or build equity in their homes. Luckily, Zillow estimates the median home value in Missouri to rise to $143,000 by 2018 – coincidentally, refinance rates in Missouri are at a historic low. For some homeowners in Missouri, mortgage rates are much lower now than they were when they purchased their homes, meaning a refinance can lower the cost of their monthly payments.
Missourians with home equity
When borrowers have considerable equity built up in a home and need money for other purposes, refinancing may be a good option to get those needed funds. For homeowners that were able to capitalize on a reduced price home during the 2012 market low, there has likely been an increase in their home’s value since they purchased it, and that added value along with the equity gained can amount to a substantial sum.
When homeowners refinance their loan at the home’s current value, they can use the additional money to pay off credit cards, finance a remodel, save for a life milestone, and more. The interest on a home loan can be used as a tax deduction, so consolidating debt into a mortgage can save money at tax time as well.
Missouri mortgage refinancing options
A homeowner has a wide range of options for refinancing, from a 3-year adjustable rate mortgage (ARM) to a 30-year fixed rate, and plenty of choices in between.
Fixed rate mortgages are often a safe bet for homeowners looking to refinance. The fixed-rate aspect of a refinance means a homeowner knows the interest rate and payment plan they will be locked into for the remainder of their loan. Fixed rate mortgages make it easier for borrowers to budget, and gives a clear indication of the savings you’ll see from a refinance. If your goal through a refinance is to secure a lower interest rate now might be the best time to move to action. Current 30-year refinance rates in Missouri are at their lowest, which means you’ll be able to lock in a great rate.
Adjustable rate mortgages offer less certainty for borrowers, but may be a wise move for some homeowners in specific situations. ARMs have a lower interest rate, initially, but will eventually adjust its rate to follow market value. If a homeowner predicts interest rates will decline in the coming months and years, an ARM could be wise. (Unfortunately, the forecast for interest rates looks like a steady incline). Other reasons to consider an ARM include:
- A homeowner nearing the end of their current loan and wants to capitalize on low interest rates for a short period of time.
- A homeowner who plans to move from their residence within the next few years.
FHA loans are also available in Missouri. Some lenders offer no cost loans where their company pays any associated closing costs. However, those loans usually have a higher interest rate and higher monthly payment.
Refinance rates in Missouri are at a low point – securing a fixed rate refinance now could save homeowners a significant amount of money over the remaining time on your loan. (Photo/Missouri Gov)
What to look out for when refinancing to longer, fixed terms
30-year fixed rate mortgages are a popular refinancing product. This is because monthly payments can be significantly lowered through this option. However, using a Missouri mortgage calculator might show that a 30-year option isn’t actually the best in the long-run.
Let’s say your current mortgage is $200,000 at six percent interest. Let’s also assume your monthly payment is $1,199. At this rate, in six years you’ll have paid $69,131 in interest.
If you’re considering refinancing to a 30-year fixed rate, at five percent – because you secured a lessened monthly payment – what does the mean for the total cost of your loan?
Your monthly payments will drop to $981. But over the life of the new mortgage, you’ll pay $170,468 in interest. Including the interest you’ve already paid, that means your total interest will amount to $239,599, over $7,000 from your original loan terms. In this case, you’ll wind up paying more through a refinance than sticking with your original loan.
Unless your immediate goal of refinancing is to save money on your monthly payments, due to financial restrictions, don’t be tempted by the “quick fix”. Extended your mortgage can really add up over the years. If you can afford it, a 15 or 20-year fixed rate are great options.
Finding a lender for refinancing
Banks and mortgage companies offer unique mortgage refinancing packages – no two are alike – which means shopping around can land a borrower a sweet deal.
Consider refinancing with the lender you are currently working with. Some lenders will offer deals to existing customers either by way of a lower interest rate, or a streamlined process that allows borrowers to skip over some of the paperwork associated with refinancing.
Another option is to look at community banks and credit unions. These financial institutions are usually not-for-profit which means keeping their members happy is of utmost priority. Sometimes the interest rates and loan terms at smaller organizations are more desirable than those of larger banks.
Regardless of who you work with, all lending companies will work with the homeowners to tailor a loan that will meet their needs. Borrowers who have had their current loan for more than two years may benefit from those great refinance mortgage rates in Missouri.
Calculating the cost of your refinance
Do your math. Before borrowing use a mortgage calculator to help determine which refinance option works for your financial situation.
Also, consider your break-even point. More than just life of loan costs, a borrower needs to consider closing fees associated with refinancing. Determine the total cost of your refinance, and divide that figure by your monthly savings. The sum of that equation will tell you how long it will take to break-even from your refinance.
For instance: Closing costs ($5000)/ Monthly savings ($300) = 16.6 months
In this example, it will take you 16.6 months to pay off your refinance. Does this timeframe fit into your financial goals? Even though there may be expenses involved with refinancing, the savings gained over the years will more than offset those costs.
Borrowers will gain the most benefit from comparing refinancing rates and terms, understanding all the conditions and deciding which option best fits their needs before signing the loan papers.
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