As mortgage interest rates edge toward 5% and higher, expect to see fewer refinances compared with the last two years.
“Mortgage refinances surged in the last two years, as many homeowners were able to take advantage of historically low interest rates,” researchers from the Federal Reserve Bank of New York wrote in a blog post based on new data on household debt and credit. While mortgages associated with the new purchase of a property increased at a steady pace, there was a relatively sharp drop in refinancing at the beginning of 2022. “The recent refinancing boom is effectively over, given the recent increases in mortgage rates and the fact that many borrowers who would benefit from a refinance have already done so,” the researchers write.
If you’ve been on the fence about refinancing, don’t fret. There are still ways to save money, cut years off your mortgage and get extra cash.
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Remove the private mortgage insurance
If you made a down payment of less than 20% when you purchased your house, you likely needed to add the cost of private mortgage insurance on top of your monthly mortgage payments. But once your principal loan balance is less than 80% of the current value of your home, the service provider may be able to remove the private mortgage insurance and save you $100 to $300 a month, says Jarrod G. Sandra, certified financial planner, and owner of Chisholm Wealth Management in Crowley, Texas.
“With the rise in real estate values, many people may have a loan value that is now below 80%,” Sandra says. Every service provider has different requirements for removing PMI but it is worth a call to ask, he says. It also might make sense to pay $500 for an appraisal, if it will save several hundred dollars a month, he adds.
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Make an extra mortgage payment
Paying an extra $100 a month can cut several years off a 30-year mortgage by paying down the interest owed, says Brandon Gregg, a CFP with BBK Wealth Management in Lafayette, Indiana. Even making extra mortgage payments a few times a year can cut years off your loan, he says. You can use a mortgage calculator to see how much an extra payment can reduce the interest you pay or the length of time you owe.
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Consider energy efficiency tax credits and deductions
Improving the energy efficiency of your home could put more money into your pocket than refinancing. Government-sponsored tax credits and deductions for improving the energy efficiency of your home also help you save money on your electric bill and increase the overall value of your home, putting more money back in your wallet, says Wheeler Pulliam, CFP with Xponify Financial. Your local utility company can help you find out about credits and deductions for energy efficiency improvements, Gregg says.
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Look for promotional rates on home equity loans
If you have a short-term financial gap and need cash, look for a one-year home equity loan with a low interest rate. With fewer homeowners refinancing, banks are offering one-year home equity loans with relatively low interest rates to bring more customers in, Gregg says. However, if you’re looking for funds to replace a roof or install a new air conditioning unit, it might make more sense to use your emergency fund than to take out a line of credit, he says. “You need to look at your total financial picture and decide what makes sense for you financially,” he says.
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