Consumer Wise: Considering a great mortgage refinance deal

By Angie Moreschi, Consumer Wise Host
Last Updated: Tuesday, January 17, 2017, 6:11 AM EST

When the Federal Reserve raised interest rates in December it sent a signal: the days of historically low mortgage rates could be numbered.

Laura Cuervo, like so many others, decided to check into re-financing.

"I don't think I've ever seen mortgage rates this low," Cuervo said. "They're here now, so it's time to take advantage, you know."

The Fed is anticipated to raise rates three more times in 2017. So a lot of folks are looking to lock in a rate now.

It's predicted rates could go up to at least 5 percent in 2017. Even so, you have to lower your rate pretty significantly to make it worth your while.

Getting a lower rate

Reasons for re-financing can range from wanting a lower monthly payment to paying off your mortgage earlier to doing a home-improvement, but you need to understand that just getting a lower interest rate doesn't guarantee automatic savings.

"The general rule of thumb is if you can save 1 percent on your mortgage," explained Susie Bruner, Regional Manager at AnnieMac Home Mortgage in New Smyrna Beach.

The long-time mortgage lender says, even with a rate that’s 1 percent lower, you still have have to consider many other factors-- like how long you've been in the home.

"Interest is paid upfront on mortgages and the longer you're in your mortgage, the less interest you're going to pay on the loan and the more your principle is going down," Bruner said.

On a 30-year mortgage, the cross-over point-- when more of your payment starts going toward principle than interest-- is about seven years in.

Consider individual circumstances

Cuervo spent about half an hour talking with Bruner and came away realizing a refinance might not be the best option for her, because she has an FHA loan and has been in the home for five years.

“You’re already five years into your loan, so you’ve already paid five years of upfront interest on the loan. So if you start all over again, you’ve wiped out five years of interest that you’ve paid on that home,” Bruner explained to Cuervo.

Bruner suggested that Cuervo could get a new appraisal of her home to show the equity, and then drop the Mortgage Insurance Protection she pays for every month. That would save Cuervo money, without having to pay the costs of a refinance, which typically run about 4 percent of the loan value.

"There are a lot of options. A lot of things, I didn't know," Cuervo said.

Cuervo was lucky that she got her FHA loan five years ago, because in the current FHA market, mortgage insurance is required for the full 30-year term of the loan.

Online Offers

Cuervo got sucked into the re-fi frenzy, after filling out a form online.

"They make it kind of enticing," Cuervo said. "Simple. We can do this in two minutes."

Actually, it’s not so easy.

"The better your credit score, the better your interest rate, the better equity, the better interest rate, so there's so many factors that these onlines don't know," Bruner said.

So, remember don't just get caught in the re-fi frenzy. Refinancing your home should be a business decision, not an emotional decision. Be sure to crunch the numbers for your individual situation to see if it makes financial sense for you.

The biggest take-away: just because an interest rate is lower doesn't mean the savings are automatic. Do your homework.

Here are some key factors to consider when you're refinancing, from The Mortgage Reports.