Mortgage rates have been trending down over the last several months and now in August 2019 have dropped to match the lowest mortgage rates in 3 years. There are many factors affecting the current mortgage market such as geopolitical tensions, Federal Reserve rate adjustments, and fear of an upcoming recession to name a few. This dip in rates can mean big savings on your monthly payments if you choose to refinance after bankruptcy.
How do I know if I should refinance after bankruptcy or not? The typical rule of thumb is that you need to be able to lower your rate by at least .5% – 1% for the numbers to work. This is an okay rule of thumb, but there are many other factors at play, and we must pinpoint exactly what you are trying to accomplish. On a rate/term refinance where your goal is the lowest monthly payment possible, your break-even calculation is very important.
The break-even calculation will tell you the number of months it will take you to recoup the costs outlaid for the refinance. Therefore, if you are going to stay in the home for the next 5-7 years and your break-even is 2 years, then it would make sense to refinance. If, however, you are most interested in taking advantage of additional equity you have in the home and paying off some other debts with higher interest rates, you would then need to calculate the net savings you would realize across all of your debts.
Is this a good time to cash-out refinance after bankruptcy? Now is a particularly good time to do a cash-out refinance after bankruptcy. Not only are rates at their lowest in 3 years but home values are up around the country thus making cash-out refinances more attractive. Many clients are able to lower their rate and take cash-out of the equity of their home without increasing their payment. This is the best possible scenario for our clients coming out of bankruptcy or our clients that we have already helped with a loan post-bankruptcy.
How do I know when rates will go back up or down? With rates at their lowest in August of 2019 in three years you know that now is a great time to refinance. Although it is possible for rates to continue down from here the large spike in rates at the end of 2018 showed people how fast rates can move in the wrong direction. Our best advise continues to be: if it makes sense to refi now then don’t gamble on rates going up or down, lock in a great rate now.