How to Know If Your Mortgage Should Be Refinanced
Freddie Mac announced today that mortgage rates have set a record, with 30-year mortgage rates falling below 3% for the first time in nearly 50 years. According to the Wall Street Journal, interest rates on the most popular mortgage in our country hit a record low in the past three weeks.
While home sales have lagged this spring , low rates have sparked interest in mortgage refinancing – the process of paying off an old loan with money from a new mortgage. You can refinance to change mortgage companies, loan terms, or lower interest rates. The underwriting process can be different, but it can be similar to buying a home.
As mortgage rates continue to fall , you may be wondering if and when to join the recent surge in new refinancing applications. Answer: it depends on the circumstances. Here are some factors to consider before applying.
- Closing costs: You will have to pay closing costs up front or as part of your new mortgage. According to LendingTree , closing costs can range from 2% to 6% of your loan amount. This can include application fees, loan disbursement fees, home appraisals, and more. If the lender offers to refinance costs without closing the deal, they may charge you more elsewhere – for example, higher interest rates.
- Interest Rate: If you can lower your mortgage rate by even 0.5% to 1%, it might be worth refinancing. But you should always calculate your breakeven – including total closing costs – before making a decision.
- Duration: How long do you plan to stay at home? If you’re planning to buy another home within a year or two, it can be difficult to recoup the initial closing costs. But if you expect to stay put for a few years or longer, it might pay off.
- Your creditworthiness: While it may be tempting to go for low interest rates, you should also consider your credit rating and job stability. Both factors can have a big impact on your ability to qualify for a mortgage refinance – and what rate you can qualify for.