A mortgage broker once told me that he didn’t care if rates were high or low. He just wanted them to change. As long as interest rates move enough in either direction, more mortgages will be created. He’s probably getting a lot of calls right now, as the average 30-year fixed mortgage has dropped down to 3.82% from nearly 4.5% over the last 3 months (source).
The result? Nearly 7 million Americans can now refinance and potentially lower their existing rate by at least 0.75% according to mortgage analytics company Black Knight (source):
According to Axios, the average principal and interest payment would be reduced by $268 per month. Your number may differ, but still that’s every month! If you are looking for opportunities with a high return-on-time-invested, this could be a big one.
Bottom line. If you have a mortgage, now is a good time to compare your existing rate with what is available. Get an accurate full quote with all the costs involved with a online comparison site like LendingTree (tip: don’t enter a phone number if you don’t want them to call you) or go local and call up your neighborhood broker. You might also try an “instant quote” below that doesn’t require any personal information. If you can save money, lock in the rate as they can pop back up quickly.
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I never understood why you would do this, if you can already make your payments? Why extend the length of time you’re carrying a loan and increase the total lifetime interest paid?
Well, there’s no reason to extend the length of time. If you’d rather trade in additional monthly money you can refinance at a short-term loan, 15 or 20 years. You may even be able to do both–Refinance to a shorter length loan and save monthly money!
It’s also possible it makes sense due to opportunity cost (especially for cash out loans). Can I deploy money in a way that makes greater than the 4-5 percent paying mortgage rate?
As Kevin said, you don’t have to extend the end date of the loan. If you keep your same monthly payments, you can pay off the loan faster and pay less total interest.
I used NerdWallet’s simple refi calculator with this example:
$300k mortgage started in 2014 at 4.5% (so you have 25 years left)
refinance now at 3.82%
I selected 22 years as the new payoff, which keeps roughly the same monthly payment as before.
This pays off the loan 3 years earlier, with a total savings of $43k even after considering $8k in closing costs.
If you refi for 30 years and keep it that long, you DO end up paying more in total interest, but you’re saving $243/mo, which if you invested, would likely outpace that.
If you refi for 20 years, your monthly payment goes up by $111 but you save $56k over the life of the loan and pay it off 5 years quicker.
https://www.nerdwallet.com/mortgages/refinance-calculator/calculate-refinance-savings
That’s useful to know. Clearly I’ve never been a homeowner, so have experience only with student loans where a beneficial refinance can be more challenging.
Do not enter a real phone number in the Lending Tree link. I should have known better. My phone has been ringing every 15 minutes for the last 4 hours.
Same here, it’s crazy! I so regret doing that.
Refinancing to a lower rate can greatly reduce your expenses in the long term, and this is especially true if you keep the same monthly payments and pay it off quicker.
Scenario:
$300k mortgage started in 2014 at 4.5%
Refinancing now to a 23-year term at 3.82%
Monthly payments are $27 less and you save $37k over the life of the loan.
A 23-year term is not realistic, but that was the closest I could find without increasing your monthly payment. You could either get a 20-yr loan (saving $57k total) or get a 30-year loan and keep paying the same monthly payment, and it’ll pay off a few years early.
Keep in mind, the refinance can have significant closing costs which mean you need to keep the loan for around 5 years before you break even. If you’re planning in keeping the home/loan for a long time, though, you can end up way ahead.
Oops.. I didn’t see my reply, so I reposted. You can ignore/delete this one.