The sexiest word in the dictionary: mortgages
Rise and shine, it’s bacon time!
If you’re like me, you’ve wondered what differentiates Canadian bacon from American bacon. It’s clearly not the same — in shape, texture, or taste.
Well say goodbye to bacon ignorance, I’m going to tell you.
It’s simply a different cut of pork. American bacon is cut from the fatty bellies of pigs. Canadian bacon is cut from the loin, which is why it’s much leaner and rounder than strips of American bacon.
What an appetizing way to start the day, eh? *In my best attempt at a Canadian accent*
What’s on the menu?
Bacon fact #6: Canadian vs. American bacon *check*
Number of the day: 3.05%
Lesson of the day: 3 questions to ask yourself before you refinance your mortgage
Savory selections
Number of the day: 3.05%
As in, 30-year fixed mortgage rates dropped to 3.05% this week, a record low.
Here’s a nice, pretty chart from the Fed that illustrates mortgage rates over the last decade.
As you can see, rates have oscillated between three-ish and five-ish percent for a while. That might not seem super volatile, but a two percent difference adds up over time.
Let’s compare using a real example.
You bought a house in the burbs. It’s a cozy three-bedroom, two-bath house with a semi-spacious backyard. The garage is tight, but it fits your Prius (thank you for driving an environmentally conscious automobile by the way). The appliances technically qualify as modern. The bedroom doors creak just enough to be annoying, but not enough to fix. The streets have those huge speedbumps, which you’re sort of on the fence about. But you get why the city added them. Local teens have a tendency to speed down your street, which is reckless in a family-abundant neighborhood. Kids these days.
Anyway, it’s a lovely abode.
To finance your new home, you secured a 30-year fixed-rate mortgage of $300,000. With a 5% interest rate, your monthly payment would be $1,610. With a 3% rate, your monthly payment drops to $1,265.
The lower rate saves you $345 per month — or $124,200 over a 30 year period…
With that kind of bacon, you could upgrade that Prius to a BMW i8. Or, you know, invest it in your kids’ education or something. Your call.
I don’t own a house, but if I did, I’m sure I’d wonder if refinancing my mortgage was worthwhile.
3 questions to ask yourself before you refinance your mortgage
Mortgages.
The sexiest word on the planet, just ahead of budgets and portfolios.
If you’re a new homebuyer or an established homeowner with years of mowing lawns and fixing sinks under your belt, you’re at least somewhat familiar with home loans. Unless you’re a multi-millionaire with a spending problem, buying a house or condo will be the largest purchase you ever make.
And unless you’re sitting on literal mounds of cash, you probably relied on a mortgage to buy your home.
Since mortgage rates are so low right now, the thought of refinancing your loan might pop in your head from time to time.
I mean, who doesn’t want a lower interest rate? But low rates don’t mean it’s the right time to refinance.
Everyone’s financial situation is different, but here are three universal questions to ask yourself before applying for a refinance loan.
How much will you save by refinancing?
The purpose of refinancing is to save money, and you can do that in one or two ways:
Lowering your monthly mortgage payment.
Reducing your overall interest payments over the loan term
Best case scenario, your refinance loan accomplishes both. But that’s not always the case.
If you’re 5 years into a 30-year mortgage and refinance at a lower rate for another 30 years, you’ll save on your monthly interest payment. BUT you could pay more interest overall since your term reset (i.e. 35 years of interest versus the original 30).
Or, if you refinance at a higher rate with a 15-year mortgage, you’ll pay more each month, but you could lower your overall interest since you’re paying the loan off sooner.
Refinancing also isn’t free. You have to consider refinancing costs like application and origination fees, which can be thousands or even tens of thousands of dollars.
Refinancing also isn’t instantaneous. They’re much faster nowadays thanks to modern tech, but it’s still a document-heavy process with multiple stages of approval. In other words, lowering your mortgage rate from 3.25% to 3.05% might not be worth the hassle.
How long do you expect to keep your home?
Refinances take time to break even (i.e. when the savings outweigh the costs). If you don’t expect to own your home for much longer, refinancing isn’t the most prudent move. You can speak with a loan officer to figure out when you’d break even with a refinance loan.
Would you qualify for a refinance?
Just because you got your first mortgage doesn’t mean you can get another loan. Several factors impact your ability to get a loan, including your equity in the house, your income, and your credit.
You’re also susceptible to external economic factors. For instance, if the housing market declines and your home value dips below your loan balance, your loan is considered underwater, which is much harder to refinance.
…
It’s best to seek advice from an advisor or loan officer before refinancing. But if you’re positioned to drop your rate by at least 1% and you plan to own your home for a while, it could save you a lot of bacon.
Savory selections
Two reads to satiate your knowledge appetite:
How and Why to Refinance Your Mortgage — If you want to learn more about refinancing your mortgage, here’s a helpful article.
Consumer Spending Rose in August, but Incomes Pose Hurdle for U.S. Recovery — It’s good to stay on top of broader economic news, especially considering we’re still in a recession.
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As a reminder, you can check out previous editions of the Bits newsletter here.
Stay sizzlin’,
Carter Kilmann