Now may be the perfect time to use the flexibility of your home mortgage to save money. In 2020, we saw record refinancing, with mortgage lenders reporting a whopping $2.8 trillion worth of refinanced loans. The unprecedented refinancing rolled on into 2021, bolstered in part by a unique initiative to help low-income homeowners take advantage of today’s low interest rates: RefiNow. Let’s delve into what makes this novel refinancing program so popular.
What exactly is RefiNow?
Recently introduced by the Federal Housing Finance Agency (FHHA), RefiNow is a program designed for mortgages that are securitized or owned by Fannie Mae. Specifically, RefiNow is aimed at helping low-income homeowners refinance at lower rates than they currently have. This means a lower monthly mortgage payment, without running into the usual roadblocks that often keep many homeowners from reaping the benefits of refinancing. These hindrances can include a homeowner’s low credit score and a high debt-to-income ratio. Traditional refinance programs often require credit scores in the 700s and debt-to-income ratios of 50%; RefiNow accepts applicants who have credit scores of as low as 620 with debt-to-income ratios of up to 65%.
Why is now a good time to refinance?
If the recent signaling of the Federal Reserve comes to fruition, and the Fed slows its purchasing of bonds as it has indicated, then surely interest rates will rise, expected to return to pre-Covid levels. The pandemic is partially responsible for today’s historically low interest rates. To ensure a strong housing market during the coronavirus pandemic, the Federal Reserve poured trillions (yes, trillions with a “t”) of dollars into mortgage-backed securities. The move worked and the low rates that resulted drove something of a refinancing frenzy that continues to this day.
How good are today’s mortgage rates? We can look back in recent history to see what an amazing deal they are. In 1981, interest rates hit their peak to reach a staggering 16.63% annually. That dropped to under 7% as we headed into the 2000s, and even farther down to just under 5% a decade ago. So it’s no understatement that today’s mortgage rates that are found at 3% and lower are historical anomalies. However, the unprecedented low interest rates we’ve witnessed in the home mortgage sector can’t last forever. We’ve already seen signs that they’re ticking up and we expect that upward trend to continue. Making now a good time to refinance.
How much can you save with RefiNow?
Homeowners who receive approval for refinancing through RefiNow are guaranteed to save at least $50 per month, but the savings could easily go higher than that. The Federal Housing Finance Agency estimates that the RefiNow program can save the average borrower between $100 and $250 each month, or between $1,200 and $3,000 each year.
Of course, the amount of savings depends on your situation. If you financed your home at rates that were offered a decade ago, you may be able to significantly lower your monthly payments by taking advantage of today’s much lower rates. A two percent reduction, for example, can make a huge difference. If you have a mortgage at a more recent lower rate, reducing your mortgage rate 1/2 percent or 3/4 percent may not seem like much — until you do the math. Those savings add up!
What are the upfront costs of refinancing through RefiNow?
Upfront fees often make refinancing unfeasible for the average homeowner. With traditional refinancing, you could be facing high appraisal fees, service fees, and other upfront costs that many low-income homeowners simply can’t afford. Even if these homeowners have the cash to cover the initial costs, this outlay of money can considerably cut into the savings that refinancing offers. Not so with RefiNow’s low upfront costs and guarantee that approved applicants will get lower interest rates and, in turn, have lower monthly payments.
How are upfront costs lower with RefiNow? If you need a home appraisal for refinancing — the cost of which impedes many low-income homeowners — you can get that cost reimbursed. Fannie May can provide a $500 appraisal credit to the lender, who must in turn pass that credit on to the homeowner. As for other fees, for mortgages under $300,000, Fannie Mae waives its up-front adverse market refinance fee, which it would otherwise charge with traditional refinancing.
What are the RefiNow requirements?
As RefiNow is a program designed to remove impediments that low-income homeowners face with refinancing, the requirements for approval are reasonable. Your Fannie Mae-backed mortgage must be for your primary residence, which needs to be a one-unit, single-family home. Your income now (not at the time of the loan) needs to be at or below 80% of the median income in your area. You can’t have missed a mortgage payment in the past six months, nor have missed one payment in the past year. Your debt-to-income ratio needs to be 65% or less and your FICO credit score needs to be 620 or higher.
Why go with City Lending over another lender?
You have choices when looking to reap the benefits or RefiNow refinancing, but few other lenders offer the high level of customer care and attention you get with City Lending. We’ve helped thousands of families with their mortgages, and we consider these folks our family. With over 100 agents ready to serve, we’re perfectly sized, large enough to provide a wide range of financial services, and small enough to give personal attention to every borrower in our financing family. You can look at some of our online reviews to see how others feel about the City Lending experience.
What can you do with the money you save through home-mortgage refinancing? From debt consolidation to home improvement projects and so much more, there’s almost no limit to the flexible ways you can use refinancing to your financial advantage. With some guidance from the caring lenders at City Lending, your home mortgage could be a previously untapped resource that provides savings for years to come.
