Skip a Mortgage Payment to Start the New Year
Most homeowners can agree that there’s no better way to kick off the new year than with the opportunity to skip a mortgage payment. However, it can be challenging to think of much else with holiday spirits in the air.
Whether you’re enjoying the warm embrace of a Tom and Jerry or busy preparing a feast for your family, the fact remains that mortgage rates are showing signs of life and are soon expected to rise.
Refinancing your mortgage now is one of the best ways to lock in a desirable rate before the New Year rush and get a head start on your resolutions.
What Is a Refinance?
With rapid home appreciation and low rates, it makes sense to see a significant increase in refinances during the first half of 2021. But what is it exactly?
You refinance a mortgage when you go to a lender to replace the original loan with a new one that has better terms. Generally, the goal is to get a lower interest rate, reduce monthly payments, shorten the loan term or switch to a fixed-rate loan.
Mortgage refinances come with several benefits and allow homeowners to shop around to find the best deal. Depending on a homeowner’s goals, they can choose from a cash-out refi or a conventional loan.
Both options replace the original loan with a new one but have unique advantages. Conventional loans are for those looking to shorten their term or get a lower interest rate. These help homeowners save hundreds in monthly payments and thousands throughout the loan’s life.
Cash-out refinances allow homeowners to borrow up to 80% of their home equity in addition to getting lower interest rates. However, this option leaves homeowners with a higher balance. It’s beneficial for those needing a lump sum of cash for home improvements or debt consolidation.
Skip a Mortgage Payment
When you refinance a mortgage, your first payment on the new loan isn’t technically due until 45 days from the closing date. In other words, you generally won’t have to make the first payment on the first of the following month, but on the next.
For example, assume you already paid your mortgage for August and closed on your new loan on Aug. 16. Because mortgage payments are made in arrears, your next payment won’t be until Oct. 1.
Under some circumstances, it’s possible to skip a payment for two months. This typically occurs if your mortgage has a 15-day grace period for late fees.
In that case, instead of closing on Aug. 16, you would close earlier, like on Aug. 10, to avoid paying for August and September. Although you skip a mortgage payment for both months, you must still pay the late fee.
It’s also becoming much more difficult to select an exact closing date due to the surge in refinance applications. Oftentimes, refinances are taking a backseat to purchases because of the deadlines that have to be met.
Additionally, many lenders may not favor this idea. The sudden changes in the payoff amount may jeopardize the title company’s ability to pay off the original mortgage. That leads to delays in your refinance and the risk of past-due payments reported to credit bureaus.
If you don’t have much time to wait for a mortgage refinance to close, getting in touch with a lender before the new year is beneficial. That way, you can avoid the new year rush and kickstart your resolutions with some more money in your bank account.
Rising Mortgage Rates
Even though rates have maintained relatively low, a trifecta of higher inflation, Fed policy changes and economic recovery signal an overall upward trend into the new year.
While the Fed doesn’t set mortgage rates, their actions and words can dictate the direction. Consider when Federal Reserve Chairman Jerome Powell announced that the Fed would begin tapering.
It didn’t mean much to most average consumers, but that announcement led experts to anticipate an increase in mortgage rates for 2022. One of the reasons mortgage rates hit and maintained historic lows is because the Fed purchased enormous amounts of bonds and mortgage-backed securities at low rates.
The announcement signaled that the Fed would cut back on those purchases, which removes one factor that’s been working to keep rates low.
Additionally, the latest October reading showed that the U.S. hit a 30-year annual inflation high. Generally, when inflation is high, interest rates increase so that the economy slows and inflation starts to turn down.
There’s also the pandemic and economic recovery to consider. When determining if mortgage rates will rise, two strong indicators to look at are unemployment levels and retail sales. And both have shown better than expected numbers in their latest report.
Altogether, the trifecta indicates an upward trend for mortgage rates in 2022. But that doesn’t necessarily mean rates will rise week after week.
As this past year has shown, current mortgage rates are unpredictable, and the low rate you find today may very well be the lowest rate available for many years.
Getting the Best Rate Before the New Year
Similar to when you shopped for your first mortgage, you’ll often find the best rates by shopping around and comparing offers from several lenders. However, in today’s rising environment, locking a rate in sooner may prove to be more beneficial.
Start your new year on the right foot by saving hundreds of dollars a month by locking in a lower interest rate and thousands when you skip a mortgage payment. Get in touch with the lending experts at Titan Mutual Lending Inc. to benefit from refinancing before the new year.