Low mortgage rates have helped to fuel the housing market. However, for some homeowners they can offer a way to save money by mortgage refinancing. There are many factors to consider when refinancing.
Greg McBride, chief financial analyst at Bankrate.com, said that homeowners who have good credit are likely to be paying rates of 3.5% or higher. According to McBride, their consumer financial company helped homeowners secure 30-year fixed rates of around 2.75% in the past few days. There are substantial savings. This is a great way to cut your monthly payments by $200 or $300.
The record low coronavirus pandemic of 2020 saw mortgage rates drop to new highs this year. Bankrate reports that interest rates are still low at 3.28% for 30-year fixed mortgages and 3.29% for 30-year refinances.
Refinancing is worth looking into if your interest rates are lower than your original loan. If you can lower your rate by less than half of a percentage point, it might be worth it. Refinance is also an option for homeowners who want to change to a shorter term loan. This could be from a 30-year to a 15-year mortgage. They may be able pay the balance off faster and have less interest.
Refinances can be expensive, and include appraisal fees and origination fees. Title insurance and taxes are additional costs. McBride suggests getting quotes from at least three lenders. He also recommends looking for the “best deal overall” that includes accounting for fees, not just the lowest rate.
Mortgage points and “discount points” are another way consumers may be able lower their interest rates.
It’s a way to lower your interest rates. McBride explained that one point equals 1% of the loan amount. So if you borrow $300,000, one point will cost you $3,000.” This is effectively prepaid interest. One point can buy your interest rate down 25%. This savings adds up over time.
He added that time is crucial.
“The break-equal points on points — typically about six years. McBride stated that it is not recommended for those who are tight on cash.
