Should you refinance your mortgage if you have a low rate?

With mortgage rates at historic lows, now is a good time to save money by refinancing. And it can make sense even if you already have a low interest rate on your mortgage. (iStock)

Mortgage rates have been at all-time lows since the coronavirus pandemic began. In early 2020, the 30-year mortgage rate was 3.72% and the 15-year mortgage rate was 3.16%.

In comparison, the 30-year mortgage rate is currently 2.96% and the 15-year mortgage rate is 2.3%. These rates continue to fluctuate and refinancing rates are unlikely to stay this low as the economy continues to recover.

So if you want to take advantage of the current installments through refinancing to lower your monthly payments or withdraw cash to pay off high-interest credit card debt, now is the time to act. And mortgage refinancing can make sense even if you already have a low interest rate.

If you’re wondering how much you could save on your monthly payments by refinancing, visit Credible for pre-qualified installments without negatively affecting your credit score.

DO I HAVE TO REFINANCE? HOW TO KNOW IF IT’S THE RIGHT TIME

When Should You Refinance Your Mortgage?

Many people consider mortgage refinancing once rates drop below their current mortgage rate as they consider a lower payment or a home loan that could help pay off credit card debt or even personal or student loans. When you refinance your mortgage, you lower the interest rate and can save money over the life of the loan. But how do you know if your mortgage refinance is the right option for you?

One of the most important things to consider is how long you plan to stay in your home. Refinancing your existing mortgage only really makes sense if you plan to stay in your own home for an extended period of time. Because after you’ve paid the closing costs, it can take several years after the refinance for profitability to break even and even longer for you to see any significant savings on your home loan.

Refinancing your mortgage also makes sense if you can lower your mortgage refinancing rate or your monthly rate. If you want to know how much you can save by refinancing, this free online refinancing calculator can help you work out your new monthly costs.

IS IT STILL A GOOD TIME REFINING MY MORTGAGE?

4 reasons to refinance a home loan when you have a low price

In general, refinancing makes the most sense if you can lower your current interest rate by a percentage point or more. Let’s look at three reasons why it might make sense to refinance your mortgage even if you’ve already had a low interest rate, including using your home, low closing cost options, new credit terms, and getting rid of FHA loan mortgage insurance:

• Cash-out refinancing: When you do a cash out refinance, you are borrowing more than you currently owe on the loan. You can invest your home’s equity in a home improvement project or pay off high-interest credit card debt.
• Minimum closing costs: When refinancing, you have to pay the closing costs just like when buying a new home. The closing costs are usually between 2% and 5% of the total loan amount. But if you get a refinancing offer with a low closing cost, then it might make financial sense to move on.
• Change your credit terms: Refinancing also makes sense if you want to change your current loan terms. For example, if you currently have a 30-year mortgage and want to upgrade to 15 years, refinancing makes sense.
• Remove mortgage insurance: For FHA loans, mortgage insurance is added to the monthly payment for the life of the loan. Refinancing to a conventional loan could allow you to get rid of mortgage insurance after you have earned at least 20% equity in your home.

To learn more about refinancing, visit Credible to speak to qualified loan officers who can answer your mortgage refinancing questions and help you plan your next steps.

Are you still considering mortgage refinancing? WHY YOU SHOULD ACT NOW

Can I get a lower interest rate without refinancing?

If you’re looking to make changes to your current mortgage, refinancing isn’t your only option. You can also apply for a loan modification to lower your interest rate.

Unlike a refinance, a loan modification does not pay off your current mortgage and replaces it with a new one. Instead, it changes the loan terms of your existing mortgage. Because of this, loan modification is only possible through your current lender.

Most people apply for a loan modification when they want to lower their current interest rate or change their current loan terms. However, most lenders will only agree to this loan option if your mortgage is flooded or you are at risk of foreclosure.

For most people, refinancing is the best way to save money and get better interest on their mortgage. Visit Credible to view your credit options with multiple lenders with fewer forms.

Do you have a finance-related question but don’t know who to contact? Email the Credible Money Expert at moneyexpert@credible.com and your question could be answered by Credible in our Money Expert column.

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