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  • California (CA) refinancing rates: Is the time right?

    Life in California—especially in the big cities—can get pretty costly. So, it’s increasingly important to make your money work for you. Too often, Californians overlook the many ways their homes can help them financially. Refinancing in California (CA), and finding the best current California refinance mortgage rate is one of those ways.


    Refinancing a home in California involves replacing an old debt obligation (your mortgage) with a new agreement (a new mortgage) that has different terms, such as a lower interest rate or a longer payback period. Both of these situations will lower your monthly mortgage. But getting a lower mortgage rate and also a shorter payback period can save you—potentially even more—money down the road.


    Many homeowners are taking advantage of low refi rates in California, allowing them to hold on to their homes and rental properties while freeing up capital to acquire additional property, pay for higher education, and fulfill other financial needs.


    Refinance mortgage rates from variable to fixed

    Many California homeowners have trouble with their current mortgages because variable or floating interest rates have grown out of control. Variable refinance rates can change as often as month to month, though typically they change annually.


    It’s a good idea to know which financial index your rates are tied to. Although variable rates will surely vary, they are typically constrained to a certain minimum and maximum. Make sure you know what they are.


    Whereas variable rates can change annually in response to the Cost of Funds Index (COFI) and other indices, fixed rate mortgages provide predictability—peace of mind. Popular  California refinancing programs offer 15-year rates and 30-year refinance rates to fit different financial capabilities, and even the biggest loans can get lower fees.


    A fixed rate means you may be paying—from one year to the next—more than would if you took a variable rate loan. However, the opposite is true, too. There’s a value to predictability when it comes to budgeting one’s finances, so fixed rates make a lot of sense for many homeowners. Remember, when interests go down, you can always do a refi on your fixed California rate for a new and lower fixed rate. You are never stuck.


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    What to look out for when refinancing to longer, fixed terms

    Let’s say your current mortgage has $200,000 at six percent. 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 California refinance rate, at five percent – likely  because of the lessened monthly payments – 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.


    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.


    In a notoriously expensive state, California homeowners can save money by refinancing (Photo/Wikimedia Commons)

    How you can consolidate debt

    Securing a Federal Housing Administration mortgage, or FHA loan, is one of the best ways to cash out and refinance a mortgage by up to 85 percent. This option is generally best for homeowners who have built up considerable equity in their homes. The upper limit of 85 percent is extended to owners of properties that were purchased more than a year before the refinancing proceedings begin. California homeowners who paid closing costs at the time of purchase may also be able to refinance their closing costs.


    Let’s look at a really generic, simple example. If you purchased a home at, say, $500,000, put 20 percent down and have been paying your mortgage, you might only owe $375,000 today. Refinance lenders in California will offer you a new loan for $500,000, allowing you to take $125,000 in liquid cash. This is an excellent tool to pay down debt, to pay for higher education, or to purchase a new car.


    To qualify for a cash-out refi, California mortgage companies typically want you to have a credit score of at least 620 to 640.

    Refinancing for lower payments

    California homeowners who meet certain criteria can use the FHA Streamline process to refinance without getting a home appraisal and—in some cases—without having to verify income. This easy means of refinancing is one of the speediest, lowest stress options available.


    Most of these types of loans are offered to people whose current loan is FHA-backed. Eligible participants also will have a strong record of on-time loan payments and have owned the property for at least six months. No-cost FHA Streamline loans are available only through FHA-approved California banks and mortgage companies.


    These loans are especially appropriate for homeowners wishing to make improvements that will ultimately add to their homes’ equity; the payment already owed plus the cost of repairs can be bundled together. They are also appropriate even when the monthly savings may not seem significant.


    Let’s say your Streamline refi only saves you about $100 a month. It’s still a wise financial move to enter into it, especially if it’s a no-cost loan (a loan with no out-of-pocket costs to you). That’s because you can, rather than spend that $100 somewhere else, use it to pay down the principal of your mortgage. By doing this, you get dinged less by the interest rate you are being charged. In some cases, you can reduce the length of your mortgage by months or years.

    A final piece of advice

    Use a mortgage calculator to help determine which refinance option works for your financial situation. Mortgage calculators allow you to add your current loan balance and interest rate to new loan products and terms. You can easily see how today’s California refi rates can help you meet your financial goals.


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