Refinancing – Now Is The time

Although I’m getting older, I can still remember the days when if you could find a mortgage that was in the high “single refinancedigits” it was a home run.  Inflation was running rampant and the government was fighting it by raising interest rates.  Those days seem long ago and far away (call me a cynic), but I believe history has a way of repeating itself.

So….flash forward to the situation today.  Fixed rate home mortgages are at an all time low, mainly due to the US Treasury printing money at an unsustainable pace and flooding the market with liquidity.  At some point this is going to have to stop (given our deficit) which invariably means that mortgage rates will go up.

Does this mean you should refinance your current real estate mortgages now?  My “big picture” response to this question is yes subject to the following conditions:

  • You plan on continuing your ownership in the property for at least another four years (it usually takes at least that long for you to recoup your refinancing costs as well as to make it worth the hassle. Additionally I would not recommend refinancing if you are within four years of paying off the remaining balance)
  • You avoid “teaser interest rates” (starting rates that are very low and vary over time) and instead lock into the existing “fixed” rates that are currently available (higher interest rates are coming)
  • You don’t pull equity (cash) out as a result of the refinance (this is a general rule and there are some exceptions to it depending on the type of property, your personal situation, etc.  That being said, the greatest single asset that most American’s have is the equity in their homes which is the result of debt reduction and inflation. Where I have seen long term homeowners get into trouble is refinancing “free” money and then experiencing short to medium term drops in home value)
  • If you decide to refinance, that you “get it done” and not try to time the market to catch the absolute low rate (this is very hard to do and most people wait too long…kinda goes with the saying “pigs get fat, hogs get slaughtered!!)

Should you have any questions related to the contents of this article in regards to your personal situation, please feel free to contact our office.

Russ Wertz – Founder and CEO of Wertz & Company, LLP, a Professional Services Firm located in Orange County, CA that specializes in working with entrepreneurs along their journey to success.