For many homeowners, their largest debt obligation and monthly expense is their mortgage - especially in Hawaii. Because of this, it makes financial sense to dedicate attention to the type of mortgage you have, and your interest rate.
Today, rates are at one of the lowest points we have seen in history. Anybody with a mortgage rate of 3% or higher on a 30-year fixed, or 2.75% or higher on a 15-year fixed can likely benefit from a rate drop. Even slight interest rate drops of 0.75%, 0.5% or even 0.25% on larger loan sizes ($200k plus) can make a considerable difference in lowering your monthly payment, paying off your loan years earlier, or unlocking equity for other purposes.
Mortgage refinancing involves replacing your current loan with a new loan. Like the original mortgage, borrowers need to undergo an application process and meet certain qualifications, including income, credit, debt and asset verification. During these challenging times, it is even more important to seek the advice of a seasoned mortgage professional as you could be leaving thousands of dollars on the table.
“Refinancing allows you to change the interest rate and terms of your original mortgage, and today’s low rates make it an opportune time to do so,” says Reed Myers, Principal of Myers Capital Hawaii, an award-winning residential and commercial mortgage company, located in downtown Honolulu. “When considering refinancing, it’s important to determine your financial goals, plans for the property, and even potential changes in your income, as many homeowners are experiencing right now. The decisions you make today could set the stage for a much more abundant financial future.”
Here are 5 key reasons a homeowner should refinance:
- Reduce monthly payment. This is the most common reason to refinance. An interest rate drop means the interest portion of your monthly payment will be reduced and depending on the term selected, this would likely decrease your monthly payment, sometimes significantly.
- Tap into home equity or consolidate debt. Have a renovation like a home-office space or a new construction project in mind? Want to consolidate debt like credit cards? You can select a cash-out refinance, which replaces your existing mortgage with a larger loan. The difference can be used to fund home renovations, pay down debt, or cover a financial emergency. Other financing options include a Home Equity Loan or Home Equity Line of Credit.
- Eliminate private mortgage insurance (PMI). Homeowners who put down less than 20 percent of the purchase price will typically pay PMI, which can add hundreds of dollars to monthly payments. Refinancing may remove PMI if the new mortgage balance is 80 percent or less of your home’s value. Mortgage insurance can vary, but in Hawaii, typically it will be $100 to $500 per month or even more. Eliminating PMI can have a large impact on lowering your monthly expenses.
- Convert to a fixed-rate loan. Rates on an adjustable-rate mortgage or Home Equity Line of Credit are reset after a set timeframe and can move higher. Many times after the expiration of the “teaser rate” (typically one to three years), the HELOC will have a “floor rate.” A floor rate is the lowest rate that the HELOC will have throughout the remaining life of the loan. Many HELOCs have floor rates of 4.5%, considerably higher than the current market. A lower, fixed-rate loan can provide peace of mind knowing your interest rate and payments will not increase in the future.
- Pay off loan faster. If your original loan term is 30 years, you can refinance into a 20 or 15 year fixed, shaving years off your loan.
Myers Capital Hawaii can help. Since 1998, the company takes an all-encompassing approach to solving the mortgage needs of its clients. Whether you are a first-time homebuyer, seasoned real estate investor, or business owner who needs capital, Myers Capital will work with you to find the right loan program to help you achieve your financial goals.
Article published in the Business section of the Star Advertiser, Tuesday, February 23, 2021. Click here to view article.