Is Now a Good Time to Refinance Your Mortgage? | LendingQuarters
- Aug 02, 2021 by
Thinking about refinancing your mortgage? Learn more about whether or not now is a good time to refinance. Visit LendingQuarters to read more.
It's a question that many homeowners have been asking as interest rates fall to record lows; is now an excellent time to refinance my mortgage? The answer, frankly, depends on several different factors, all of which must be considered before proceeding. Over the following few paragraphs, we'll take a closer look at those factors so that you can make an educated decision on whether or not to go forward with a refinance.
What Are the Benefits of Refinancing a Mortgage?
There are, to be sure, several excellent benefits that many homeowners can gain when they refinance. However, one thing to keep in mind is that the benefits will be different from one borrower to the next. The benefits also depend on what financial goals you hope to accomplish. Also, mortgage rates need to be lower than when you initially purchased your home. (Hint: right now, they're down.) Below are the most significant refinancing benefits you could gain, including;
A Better (i.e. lower) Rate
First and foremost, refinancing can often get you a better mortgage rate. Indeed, a better rate is the most common reason for refinancing a mortgage. This is especially true if your credit situation (and credit score) have improved significantly since you first obtained your original mortgage.
A Lower Monthly Payment
Many homeowners can significantly lower their monthly mortgage payment through refinancing, especially if they keep the same payoff date. Extending your payoff date when refinancing, while not always recommended, can also lower your monthly payment.
Save Money By Shortening Your Term
If you're like many homeowners, you started with a 30-year ARM (adjustable-rate mortgage). If that's the case, switching to a 15-year fixed-rate mortgage is a brilliant move right now. First, the rates on 15-year loans are much better than 30-year loans. Second, you'll pay off your mortgage faster, which will save you a ton of interest. Depending on your financial situation, you could reduce your term without seeing a significant increase in your monthly payment.
A few other benefits of refinancing include:
Consolidating your debts.
Borrowing money in a more cost-efficient way.
Eliminating mortgage insurance.
Combining two mortgages into one monthly payment.
Removing someone from the existing mortgage.
Is it a Good Time to Refinance Right Now?
Financial experts will tell you that, yes, right now is a great time to refinance if your financial situation warrants it. The reason why is that, due to the 2020 pandemic, interest rates in the mortgage insurance industry dropped to around 3%, which is excellent.
However, those same experts advise that it should be done relatively soon if you're going to refinance. The reason is simple; the pandemic is coming to an end, and interest rates are on their way back up. As of May 2021, for example, the average cost of a 30-year fixed-rate mortgage is 3.35%, up from the 3% it's been for nearly a year. Also, Fannie Mae and the MBA predict that rates will hit 3.4% to 3.7%, respectively, by the end of the year.
Now, you may be thinking, "if rates are going up, why should I refinance now"? That's easy; the current rates are still much better than those from just a few years ago. For example, in 2019, the average for 30- year mortgages was 4.4%. Also, during the 2010s, mortgage rates averaged just over 4%. In short, even at 3.35%, mortgage rates are still nearly a point lower right now, which can equate to significant savings depending on how and why you refinance,
Should You Refinance Your Mortgage?
Here's the thing; just because it's a good time in general to refinance a mortgage doesn't mean it's a good choice for all homeowners. As mentioned earlier, many factors need to be considered before making a financial decision this impactful. For example;
Can your budget handle the financial changes?
Is your Debt-to-Income ratio (DTI) low enough?
Will refinancing cut your current rate by at least half a point?
Will you stay in your current home long enough to make refinancing financially viable?
To answer these questions and any others you might have, it's highly recommended you speak to a financial expert. Yes, the time is right for many homeowners to refinance, but making sure you're one of those homeowners is vital before you make a decision. Getting the advice and opinion of a financial expert before you do is an excellent idea.
One last important note; speaking with a loan officer is a free service. That's right, free. More importantly, the conversation you have with them can give you valuable information to help you develop a financial strategy. So yes, if you fit the criteria, now is a good time to refinance your mortgage.
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