Due to the pandemic, mortgage rates fell, reaching historic lows. However, since many households faced significant financial hardships throughout 2020, not everyone was able to take advantage of the rates initially. For those that didn’t, they may be wondering if they missed the refinance boat. If you’re wondering if refinancing your home now is potentially a wise move, here’s what you need to know.
Interest Rates for Refinancing Your Home
Generally, tumbling interest rates are what makes refinancing your home an attractive option. While incredibly low rates began in 2020, and the economy in many areas is starting to improve, that doesn’t mean you have missed the refinance boat.
By and large, mortgage refinance rates have remained both low and reasonably steady. Depending on your credit score, mortgage size, and other factors, as of mid-February, rates below 3 percent were still available. In fact, on Monday, February 15, the average rate for a 15-year fixed refinance was 2.361 percent, while 30-year fixed refinance mortgages had an average of 2.932 percent.
Now, these rates are a bit higher than the historic lows that occurred during 2020. However, the difference is actually quite small.
For example, in December 2020, 30-year fixed refinance was 2.90 percent. That’s only around a 0.03 percent difference between mid-February’s rates.
Will Low Interest Rates Stay Long-Term
Generally speaking, these low interest rates aren’t going to be in place long-term. While the situation caused by COVID-19 is still relevant and highly fluid, an economic recovery will inevitably occur at some point.
Precisely when that will happen is hard to predict. However, as more stimulus is issued and vaccine distribution broadens, there will eventually be a shift.
Since the refinance process can be lengthy, those who are interested in pursuing one shouldn’t delay. While rates will rise again at some point, the chance of them getting lower moving forward is incredibly slim. Even if the averages do fall again, the downward shift will likely be incredibly minimal.
How Your Current Interest Rate Should Factor into Your Decision
While low rates make refinancing your mortgage a more attractive option, that doesn’t mean everyone should move forward. When you refinance, you do incur costs and potentially lengthen the repayment term of your loan. As a result, even if you secure a lower interest rate, that doesn’t guarantee savings.
Typically, experts advise only refinancing if you can secure a new rate that’s at least one percentage point lower than the rate on your existing one. That creates the biggest potential for a significant savings, particularly if the term length on your new mortgage is close to the remaining amount of time on your existing one.
Before you move forward with a refinance, spend some time going over the numbers. Estimate the costs associated with refinancing your home, as well as the total amount of interest paid. Additionally, examine the shift in your monthly payment.
Also, factor in whether refinancing allows you to get rid of a cost. For example, if you were paying PMI but have enough equity to eliminate that if you refinance, that alone could make moving forward wise. However, it’s only one part of the picture. That’s why it’s best to review all of the numbers, giving you a chance to figure out if refinancing your home is genuinely the right move for you.
Have you recently refinanced your home? Are you thinking about refinancing your home? Do you think now is a good time to move forward with home refinancing? Share your thoughts in the comments below.
If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started. Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.