Finance: Refinancing property in 2021

Finance: Refinancing property in 2021
(Photo/Missy Schrott)

By Frank Fannon

Mortgage rates continue to remain at record lows throughout the country, providing homeowners the opportunity to refinance their loans at record low interest rates. These low rates also present a chance for renters to become homeowners and retain great financing terms.

There are a few factors that homeowners should consider when refinancing their property. The long-term savings are usually the first consideration. Many borrowers can turn a 30-year loan into a 15- year loan if they can afford a slightly higher payment. Each consumer has different objectives, and a common question is: What is more important to you, improving your cash flow or refinancing to a 15- year or shorter-term loan where more money is applied to principal than interest? With a shorter-term loan, you have a higher payment, but you would pay thousands of dollars less over the life of the loan to retire the debt.

There is no right or wrong answer to which type of loan to take; each individual may have different objectives. The Fannie Mae lending guidelines are very restrictive and after the 2008 housing collapse, the mortgage industry is very compliant driven.

If you qualify for a loan underwritten to the Fannie Mae guidelines, this is where you would get the best rates, currently about or under 3%.

Patience is an attribute borrowers need to have when refinancing in 2021. The majority of loans in America can improve with a refinance and the current timetable from application to closing is around 90 to 120 days based on the lender.

Lending guidelines and common sense are two different things. If you have lots of equity and you are lowering the payment, you still have to meet the paperwork and the tedious details to get the loan to closing. Home values continue to rise in Alexandria and many homeowners have equity in their properties. When refinancing, you need to ask yourself if you would need money for anything in the next few years. Now is an opportune time to take cash out of your home if needed to consolidate debt, pay for tuition, home improvements or any other needs you may have.

Every $100,000 borrowed cost yields about $430 a month for principal and interest on a 30-year fixed loan based on current rates.

If the pandemic has affected your income, it could present a challenge with refinancing. Lenders have allowed for loans to go into deferment, but all mortgage payments need to be brought current to qualify for a refinance.

Home prices in Alexandria are relatively expensive, but low interest rates help keep payments down. Despite what you may hear, there are over 100 condominium properties to buy in Alexandria for under $400,000, and first time buyers can acquire a home with as little as 3% down.

Many of the large banks will give a new buyer a grant toward the closing costs to meet the federally chartered Community Reinvestment Act goals. If you are refinancing or buying this year in Alexandria, you will have a chance to acquire favorable financial terms that can be locked in for years to come.

The writer is a local mortgage banker who has been financing homes in Alexandria since 1993. Fannon also serves on the City of Alexandria’s Affordable Housing Advisory Committee.