Maybe you’ve heard someone declare “Mortgage rates are at an all-time low!” It’s been a fairly common refrain in the last few years as federal interest rates have fallen.
When mortgage rates are low, it’s a good time to get a first-time mortgage or to refinance a mortgage that you already have. If you think refinancing can save you money on your mortgage, then NOW might be the perfect time to look into it.
Mortgage rates are currently at record-breaking lows due, in major part, to the extremely low Federal Reserve rate. The fed rate was dropped to near 0% in recent months in response to the economic hit from coronavirus.
There are many reasons why homeowners refinance:
- To obtain a lower interest rate
- To shorten the term of their mortgage
- To eliminate previously required mortgage insurance costs
- To convert from an Adjustable Rate Mortgage(ARM) to a fixed-rate mortgage, or vice versa
- To tap into home equity to raise funds to deal with a financial emergency, finance a large purchase, or consolidate debt
One of the best reasons to refinance is to lower the interest rate on your existing loan.
Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.
When interest rates fall, homeowners sometimes have the opportunity to refinance an existing loan for another loan that, without much change in the monthly payment, has a significantly shorter term.
Homeowners often access the equity in their homes to cover major expenses, such as the costs of home remodeling or a child’s college education. These homeowners may justify the refinancing by the fact that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source.
If you could save several hundred dollars a month, or have your home paid off in half the time, would you want to? Refinancing might offer you just that kind of savings.
Since refinancing can cost between 2% and 5% of a loan’s principal and—as with an original mortgage—requires an appraisal, title search, and application fees, it’s important for a homeowner to determine whether refinancing is a wise financial decision.
Call us to discuss your specific situation.