Mortgage Refi Rates Tumble To 50-Year Low

Now is the perfect time to refinance your mortgage and save money, with rates at their lowest since 1971.

With mortgage rates at all time lows, a refinance could save you thousands of dollars per year. A mortgage can be a serious financial burden, but that need not be the case anymore, as the Fed continues to pump funds into the economy.

Keep in mind that every mortgage is different. They all come with varying rates, terms, and closing costs. Some might even penalize you for paying your mortgage off early. Take all these things into consideration before you proceed with refinancing your mortgage.

As the interest rates of mortgage continue to drop. It’s wise to look at the following factors:

Interest Rate

The first thing you need to know is how much reduction can you receive on your mortgage reduction. If you’ll only receive a very small reduction let’s say 0.25% lower, then it’s not worth a refinance. But if the reduction ranges between 0.5% and 1%, you can save a lot of money by refinancing your mortgage.

Obviously, you will need to combine this factor with other details to make an informed decision. A lower interest rate might look attractive but not worth it if you’ll get stuck with high mortgage expenses like high closing costs or others.

With current rates as low as 2.125% it makes sense to refinance and save a bundle of money.

Closing Costs

Even though closing costs vary from one deal to another, it’s hard to avoid them completely. Since they factor in about 2% to 6% of your total mortgage cost. Therefore, your closing cost will most likely be higher if you’re searching for a lower total amount deal.

Closing costs usually include a home appraisal, application fees, and other extra charges. Also, you might have to factor in legal fees if you or the lender needs a sign-off from a legal expert.

It’s important to ensure that you have a detailed and accurate accounting of the closing costs you’ll need to pay to refinance your mortgage.

Escrow

The possibility of you paying escrow depends on how your previous mortgage was set up. Nonetheless, it’s common to pay some additional monthly fees that your bank holds in escrow. The bank often uses this money to pay for your house’s annual property tax.

Based on how you time your refinance, you could have lots of money or very little money in the escrow account. But still, it’s important to know how much money you have.

When you close your previous mortgage, you’ll receive a huge sum of escrow money. Sometimes, it can be thousands of dollars. While the money can come in handy paying things like closing costs, banks often hold it for 30 to 60 days.

Remember that your property tax will still exist. So you might have to fund your escrow account upfront when getting a new mortgage. As a result, your closing costs will most likely be higher than what you originally expected.

You can solve this issue by refinancing your mortgage a bit more than you actually need. For example, if your mortgage debt is $150,000. You can refinance it for $155,000. The additional $5,000 can go toward the closing costs. So when you receive the old escrow amount after 30 or 60 days, you can make a large payment toward your new mortgage.

Length of Mortgage

By refinancing your mortgage, you can save money on your long-term fees or monthly payments. However, if you’re planning to relocate in a few years, then it might not be worth it since you will need to pay new closing costs when purchasing a new house.

Don’t forget you’ll still need to cover legal fees, moving costs, and estate commission. Also, you don’t know if interest rates will surge in the coming years.

But if you’re planning to live in your current home for many more years, consider refinancing your mortgage because it could save you a lot of money over its duration.

And if you can afford higher payments, then you can refinance your mortgage within a short period. For instance, you can convert a 15-year mortgage into a 10-year mortgage with higher monthly payments.

What’s even better, the entire cost of a mortgage will go down because the interest you’ll be paying is less.

Your Credit

While the whole idea of taking advantage of lower interest rates and saving yourself lots of money is exciting, it all depends on your creditworthiness.

If you have an excellent credit score and solid job security, then you’re safe – you will not encounter a lot of issues. But if you have little job security and your credit score is shaky, you might not be able to capitalize on this opportunity.

It’s therefore, crucial to review your credit score, take the necessary steps to improve your credit, or fix the issues in your credit history, before thinking of refinancing a mortgage.

Shop Around

Just like anything else you purchase, it’s important to shop around. Get multiple quotes and offers to find the best one for your situation.

Mortgage companies offer customers different terms, so take your time to analyze them. Some companies will offer you “no closing cost” but charge a higher interest rate. Others may be willing to match interest rates.

Don’t fear to ask a company to lower its interest rates to match a competitor. If they say no, you always have other options.

Final Thoughts

To determine if you should refinance your mortgage, crunch the numbers yourself. Ensure you can confidently handle the monthly payments for the life of the loan. Take your time and do some shopping around to find the best refinancing deal.