At Merit Co. and our In-House Lender, New Life Mortgage, we recognize that these can be challenging financial times. However, a recession is not a cause for panic. Although they start for many different reasons, these periods of economic slowdown are a regular part of the global economic cycle. It is natural for the economy to slow down after a sustained period of growth. Fortunately, there are ways that you can be prepared to weather times of financial uncertainty.
A Time to Prepare
Often, there are signs that the economy is slowing down. You may hear reports about consumers spending less or rising unemployment. Paying attention to these signs gives you an opportunity to prepare financially. If you have not already done so, writing up a family budget will help you understand your monthly expenses and see the places where you can cut back if necessary. You should also take an inventory of your assets to see how long you can go if someone in your family loses his or her income. If you have certificates of deposit or other time-based investments that are about to mature, this might be a good time to put the money into a regular savings account so you can access it without a penalty.
Refinancing your mortgage is an important place to look for financial savings. You want to be able to make this important payment consistently no matter what is happening in the economy. If you can lower your monthly mortgage payment, it will give you more flexibility in your budget.
Refinancing Your Mortgage
For homeowners, a recession is often an opportunity to look for a lower interest rate on their home mortgages. Models of supply and demand show that prices tend to drop when there is a high supply of an item at the same time there is a low demand for it. Financial institutions follow a similar pattern. During a recession, fewer people are looking to borrow money. This tends to lower interest rates along with government actions hoping to stimulate the economy. A lower interest rate will mean a lower monthly mortgage payment when you refinance.
If you are considering refinancing your mortgage, you need to examine your current financial situation to find a new loan that will suit your needs. Refinancing is not just a matter of going to the bank and getting a readjusted interest rate. The lending institution is entering into a whole new loan agreement with you. As you enter the process, you will want to talk with several lending institutions to find the best rate and the best loan package. The new agreement will come with closing costs and other fees. The bank may also ask for you to pay them a certain percentage of the loan upfront. New Life Mortgage can help with you this process!
Some banks offer a “no-cost” loan option. In this type of loan, you will pay minimal fees upfront, but the long-term interest rate will be higher. This may be a good option to refinance your mortgage if you are short on liquid assets. When you take into account the upfront fees, you want to be certain that the lower interest rate will save you money in the long run.
In preparation for a recession, the goal of refinancing is to make your monthly payment more affordable. Any drop in interest rate will help achieve that goal. However, with the fees involved, refinancing may not always be the best move. As a rule of thumb, you should consider refinancing your mortgage if the new interest rate will be at least one percent lower than your current rate. Typically, this means you will recover the cost of your up-front fees within a year.
Refinancing your mortgage in preparation for a recession has a different purpose than taking out a home equity loan. People secure funds from home equity during strong economies to give themselves extra money for renovations or other large purchases. During a recession, your income may be less secure. You want to focus on maintaining your standard of living rather than making improvements.
Any money you save on your monthly payment should be set aside so that you enter the recession in a stronger financial situation. You want to be able to cover your regular expenses as well as handle the unexpected. The need for home or auto repairs is unpredictable. When you know that you have money set aside to cover a couple of monthly mortgage payments, it will give you and your family greater peace of mind.
The real estate experts at Merit Co. can help you find a home or rental in the Colorado Springs area that will meet your needs and budget. We partner with our In-House Lender, New Life Mortgage to help put your new home within your financial reach. During these unusual times, we understand that you will have serious questions about both your home and mortgage. Our knowledgeable team is ready to assist you. Contact Merit Co. at (719-645-7636) or New Life Mortgage at (719) 272-3850 for more information. We can help you during these times.