Should You Refinance Your California Home Now?

If you’ve been paying attention to mortgage news for the past few months, the headlines are all about how it’s THE time to refinance. If you haven’t looked into refinancing your mortgage yet, we’re here to tell you that you absolutely should think about a refinance for your California home.

If you feel like taking the easy route to a refinance, we totally get it. You can just call or text us, and we can quickly help you figure out what the right move is with no additional research on your end. But if you want to know more about your options before you call, well, this article is exactly what you should be reading right now. Here’s what you need about whether or not it’s right for YOU to refinance.

Reason 1: If Your New Interest Rate is At Least 1% Lower Than Your Old Interest Rate

A good rule of thumb is that if the interest rate on your refinance is 1% lower than your current interest rate, refinancing is likely to save you enough money each month to be worth it. But keep in mind that a 1% drop will bring much more meaningful savings if you have a $500,000 loan versus a $100,000 loan.

Should you rush to refinance with rates where they are now? Well, there’s really no rush—there will probably continue to be good opportunities to refinance at low rates throughout the year. But if you can get the target rate that makes sense for you, what are you waiting for? There’s no guarantee what will happen with rates in the future (though our entire office wishes we had an interest rate crystal ball).

Reason 2: If You Want to Shorten the Loan’s Term

With rates this good, you may be able to refinance your home to a loan with a much shorter term—you could go from a 30-year to a 15-year, for instance, possibly without a huge change in your monthly payment.

A shorter loan will help you build up home equity much faster, and of course, pay off your loan sooner. You’ll also be paying a whole lot less in interest over time. We’ll help you see what options work best for your situation. (And by the way, you’re not limited to just a 15-year or 30-year loan, either. Oddball loans are sometimes the perfect solution.)

Reason 3: If You Want to Take Equity Out of Your California Home

Many homeowners in California have seen a huge increase in their home equity in the past few years. If you have a lot of equity in your home, you might want to refinance and turn some of your equity into cash to cover major expenses like a home improvement project or a kid’s college education.

Mortgage rates are often much lower than interest rates for other loans. And with rates so low, this may be the least expensive way to finance that new kitchen. (But we always recommend that you check with a financial advisor to see how a cash-out refinance might affect you first.)

Reason 4: If You Want to Change Your Loan Type

If you have an ARM (or adjustable rate mortgage), you may have a lower rate than you can currently get with a fixed-rate mortgage. But ARMs have periodic rate adjustments that can end up higher than the rate for a fixed-rate mortgage. It’s a good idea to consider switching your loan type when rates are especially low. We recommend looking into this option if you’re going to be in your home for a long time (and may have to go through many rate adjustments throughout the life of the loan).

On the flip side, if you’re only going to be in your home for a few years, it’s possible that switching from a fixed-rate loan to an ARM could be beneficial for you.

Other Things to Consider when Refinancing Your California Home

Closing Costs

Now, about closing costs: you have to consider more than just the interest rate when you refinance. Closing costs can range from 1% to over 3% of the principal amount of the loan. You’ll need to determine a breakeven point for closing costs. We can provide you with a comprehensive analysis to help you with the decision-making process.

To calculate your own breakeven point, determine your monthly savings and figure out how many months it will take for that savings to pay for your closing costs. If you plan to stay in the home for less time than your breakeven point, refinancing doesn’t make sense no matter how good interest rates are.

(It’s also possible to roll closing costs into the loan, but finding the breakeven point is a little more complicated, so feel free to ask us for help.)

If you need help deciphering your own refinance situation, just text us or give us a call at (916) 465-6639. We’re here to walk you through everything. If you fit into any of the situations above, please reach out. We’ll do everything we can to save you some money as painlessly as possible!