02/12/2016. Since the beginning of the year, the value of the stock market seems to continually decline each week. I am afraid to even open my next 401k statement due to the significant drop in value that has likely occurred in anything invested in stocks. As I watch CNBC periodically throughout the day, it is constant negative rhetoric about oil prices, the world’s political climate, and continued deterioration in value of investments.
In the financial markets, every action has a reaction and drops in the market can create opportunities for the people that take advantage of it. The state of our stock market and world economy has caused interest rates to remain very low. In December, the Federal Reserve moved short term interest rates up by a quarter of a point. However, today, the U.S. 10-year Treasury rate is more than half a point lower than it was in November of 2015. Therefore, long-term interest rates are actually lower today than they were at the time of the Federal Reserve’s December increase. This means that national mortgage rates are lower today that they were in most of 2015.
To offer an example of refinancing a 30 year mortgage to a 20 year mortgage1:
If a borrower had a $200,000.00 loan, initiated on 2/1/2014, at 4.50% fixed interest rate for 30 years it would yield an APR of 4.535% with prepaid finance charges of $831.66 (this example does not charge discount points or origination fees). They would be making monthly payments of principal and interest at $1,013.37. This loan would have a remaining balance of $193,067.53 today. They would have 28 years of scheduled payments remaining, totaling $340.492.32. However, if they refinanced the $193,067.53 into a 20-year mortgage at 3.35% yielding an APR of 3.397% with prepaid finance charges of $824.71 (this example does not charge discount or origination fees), their monthly payment would increase to about $1,104.50, totaling $265,080.00. The reduction of interest costs is over $75,000.00. And, by increasing their monthly payment by only $91 per month, they would shorten the length of their mortgage loan by 8-years. Who would‘ve thought to examine refinancing a 4.50% mortgage loan????
Everyone should take a few minutes and compare the terms to today’s interest rates to their existing mortgage loan. I would welcome you to examine the significant interest cost savings that can be attained by refinancing to a shorter term mortgage. The rates are significantly lower for shorter term mortgages and provide many Borrowers the opportunity to shorten their loans with minimal impact on monthly payments. Tonya Duncan, Mortgage Lending Manager for NebraskaLand Bank has 20+ years of mortgage lending experience. She can be contacted at (308) 534-2100 or tduncan@nlnb.com to assist you in examining your refinance options. Your 401k balance may be down today…., but it may also create an opportunity for you to significantly lower your housing expense.
Written by Ty Lucas, Executive Vice President, Chief Lending Officer
1Payment does not include taxes and insurance premiums, if applicable. Actual payment obligation may be greater. Offer is subject to credit approval up to 80% loan-to-value. A 20% down payment may be required. Flood insurance required if applicable. Consult your tax advisor regarding deductibility of interest.