mortgage

How to land an ultra-low 15-year mortgage rate for your refinance

How to land an ultra-low 15-year mortgage rate for your refinance
How to land an ultra-low 15-year mortgage rate for your refinance

Thanks to this year’s historically low mortgage rates, refinancing remains a popular activity among homeowners — and it has taken on more urgency as a new refi fee threatens to push rates higher this fall.

A 30-year fixed-rate mortgage might be a borrower’s automatic first choice for a refi loan. But if you’ve been in your house a few years, refinancing to a 15-year mortgage can keep you from dragging out the debt and piling up massive interest costs.

The monthly payments on a 15-year home loan can be steeper, but the interest rates are lower: currently near an all-time low at an average 2.37%, which is one-half of 1 percentage point (0.50) below the typical 30-year mortgage rate, according to mortgage company Freddie Mac.

Some borrowers in 2020 have been able to score 15-year rates in the low 2s or even under 2%.

Could you? Here are four tips on how to get the very best deal when refinancing into a 15-year mortgage.

1. Run the numbers on 30- and 15-year loans

Most mortgage lenders offer both 30- and 15-year terms. Compare the current average rates between the two loan products, then zero in on a couple of lenders and see how their 30- and 15-year rates differ.

If 15-year mortgage rates don’t seem substantially lower, it may not seem worthwhile to accept the stiffer monthly payment that comes with the shorter-term loan.

Still, the long-haul savings can be considerable.

Freddie Mac says rates are now averaging 2.87% for a 30-year fixed-rate mortgage, versus 2.37% for the 15-year option. Let’s say you’re trying to decide whether to refinance a $200,000 mortgage balance for either 15 or 30 years at today’s average rates.

  • Your monthly payment would be $1,321

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How you can buy a home with a low-down-payment FHA mortgage

Many people consider homeownership part of the American dream — but can’t dream of landing a traditional mortgage. That’s why FHA loans exist.

These loans that are backed by the Federal Housing Administration are popular with first-time buyers and those with lower incomes. While you might need a credit score of 620 for a conventional loan, you could be approved for an FHA loan with a score of 500. And you could be eligible for a down payment of only 3.5%.

They’re not just for new buyers, either. You can use your FHA loan to refinance your mortgage or even repair an older home.

Sound appealing? FHA loans do offer some attractive features, but they may not be right for everyone.

How do FHA loans work?

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Congress established the Federal Housing Administration in 1934 to help borrowers get a mortgage, especially those who would otherwise have trouble qualifying.

FHA loans are insured by the government agency. So while the loans are issued by private lenders, the FHA is taking on the risk. If you can’t pay your debt, the government steps in to pay the lender.

With less risk involved, lenders have the confidence to be a bit more lenient with their underwriting standards. Even if they don’t have pristine credit, today’s borrowers can secure FHA loans with historically low mortgage rates and lower down payments.

But the FHA limits how much you can borrow, based on where you live.

The maximum FHA loan for a single-family home in a low-cost county is $331,760. But in more expensive housing markets, that number will rise higher toward the upper limit of $765,600. The Department of Housing and Urban Development (HUD) offers a search engine to help you find the limit in your area.

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Key Income Tax Changes for Mortgage Interest

Congress keeps chipping away at itemized deductions like the one for mortgage interest. This includes the latest changes under the Tax Cuts and Jobs Act (TCJA) for 2018 through 2025. The good news: Generally, you can still deduct most or all of the mortgage interest you pay if you continue to itemize deductions on your personal tax return.

Background: Prior to the TCA, you could deduct the interest paid on either acquisition debt or home equity debt, or both, within generous limits.

  • Acquisition debt: This is defined as a debt where you use the mortgage proceeds to buy, build or substantially improve the home. Typically, acquisition debt represents the main part of a mortgage interest deduction. To qualify for the write-off, the loan must be secured by a qualified residence, such as your principal residence or a second home like a vacation home. The interest is deductible on loans up to a $1 million threshold.
  • Home equity debt: When permitted by state law, you previously could deduct the interest on home equity loans secured by a qualified residence, regardless of how the proceeds were used. With a home equity debt, deductions were limited to interest paid on the first $100,000 of debt. Furthermore, the loan amount could not exceed your equity in the home.

Along with other itemized deductions, mortgage interest deductions are claimed on Schedule A of Form 1040. They were subject to the “Pease rule” reducing itemized deductions of high-income taxpayers.

But the TCJA tightened up the rules, beginning in 2018. Notably, it imposed these three changes.

  1. The threshold for deducting interest paid on acquisition debt is lowered from $1 million to $750,000. This applies to loans originating after December 15, 2017 (or April 1, 2018 if there was a binding contract in place before December
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Coronavirus mortgage bailouts fall below 3 million

The number of mortgages whose payment requirements have been suspended because of the coronavirus plunged in the past week, as the first group of loans hit the end of their six-month term.

It was the largest decline since the crisis began.

Over the past week, active forbearances dropped by 649,000, or 18%, according to Black Knight, a mortgage technology and data analytics firm. That brings the total number of plans, both government and private sector, below 3 million for the first time since April. In addition, the decline was noticeably larger than the drop of 435,000 when the first wave of forbearances hit the three-month mark in early July.

As of Oct. 6, 2.97 million homeowners remain in pandemic-related forbearance plans, or 5.6% of all active mortgages, down from 6.8% the previous week. The loans represent collectively $614 billion in unpaid principal.

These plans allow borrowers to delay their monthly payments for at least 30 days and up to one year. The plans are generally administered in three-month blocks, with the option to renew at the end of each period. The payments can be made up when the loan is refinanced or the home is sold. Lenders are also doing some loan modifications, lowering interest rates, as well as allowing some borrowers to add the payments to the end of the loan. Most are not requiring any lump sum payment immediately after borrowers exit forbearance.

“As the first wave of forbearances from April hit the end of their initial six-month terms, we’ve seen the strongest decline in the number of active plans since the pandemic began,” said Andy Walden, Black Knight economist and director of market research. “Though the market continues to adjust to historic and unprecedented conditions, these are clear signs of long-term improvement.”

An additional 800,000 forbearance plans

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10 Alternatives to a Reverse Mortgage

Reverse mortgages can be a good option for many homeowners. They let you borrow based on the equity in your home. Instead of paying the bank, the bank pays you — tax-free — with a series of payments via a partial lump sum of money or a line of credit.



jean-georges Brunet standing in front of a window posing for the camera


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Under the right circumstances, a reverse mortgage loan might help an elderly person stay at home when retirement money is running out.

Money Talks News founder Stacy Johnson says reverse mortgages can make sense for certain types of people. But they also come with some big disadvantages. For more on the pros and cons of reverse mortgages, check out “Should I Get a Reverse Mortgage?”

If you read that story and decide a reverse mortgage is not for you, it’s probably time to look at other options. If you prefer taking another route, check these alternatives.

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1. Sell and downsize

It’s hard to let go of your home, but selling may give you more freedom.

Plus:

  • If you have equity in the home, you’ll probably get more of it from selling than from taking out a reverse mortgage.
  • You can use the proceeds from the sale to buy or rent a more affordable home, or to move in with relatives.

Minus:

  • The home is no longer yours.
  • You can’t bequeath it to heirs.

2. Refinance

Mortgage rates have climbed recently, but are still low by historical standards. If your rate is high now, look into refinancing, which might drop your monthly payment to a more manageable number.

Plus:

  • Fees are typically lower than with a reverse mortgage.
  • Your heirs still may be able to inherit the property.

Minus:

  • You must
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