Is now the right time to refinance your mortgage?
Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about oureditorial standards
and how we make money.
Here’s an eye-catching stat for you: 4.4 million eligible borrowers would financially benefit from refinancing their home.
Per a recent report from Black Knight Financial Services, at current-ish interest rates, the average re-fi candidate could save an extra $260 a month, while nearly 700,000 of potential borrowers could save $400 or more. Thanks to interest rates on 30-year mortgages falling below 4%, the refinanceable population has risen to its highest point so far in 2017, Black Knight said.
Its analysis is based on the Freddie Mac’s 30-year fixed rate as of June 8th, which was 3.89%.
Not so fast. Black Knight’s report considers a borrower refinance-able if they have at least 20% equity in their home and a credit score of 720 or better. Plus, they must be current on their mortgage payments and stand to lower their current interest rate by at least 75 basis points (or 0.75%).So, first and foremost, if you don’t meet that criteria, the savings numbers above won’t apply.
Plus, those numbers assume everyone who can re-fi, does re-fi — and that they do so from a 30-year fixed-rate mortgage to a 30-year fixed-rate mortgage. So, again, remember those caveats if the stat’s got you thinking about a re-fi.
Now, if you do meet the criteria and refinancing was already on your radar, then, yes, now is a good time. Interest rates are expected to rise steadily over the next few years. Projections from the Mortgage Bankers Association put the average interest rate on a 30-year fixed rate mortgage at 4.4% by the fourth quarter of 2017 and over 5% by late 2018.
Keep in mind, though, the decision to refinance should involve more than just rates. There are costs associated with the whole process. You’ll have to pay close on your loan again and cover fees for stuff like a new appraisal, title search, and hiring an attorney. Plus, your lender will likely confirm and possibly amend your existing homeowners insurance and title insurance policies. Moreover, you could easily wind up extending the term of your loan — and, more pointedly, the total amount of interest you’ll pay over its life — by refinancing.
The short take: Weigh all the pros and cons before moving forward on a lender’s offer.
"As always, whether the goal is to lower one’s monthly payment or to take equity out of the house for other purchases, borrowers should carefully review their own financial situation, consider the length of time they plan to remain in the home, and make sure to fully account for all closing costs when considering refinancing their home mortgage," Mike Fratantoni, the MBA’s Chief Economist, says.
Need more to go on? No worries. We’ve got a beginner’s guide to refinancing right here.
Get essential money news & money moves with the Easy Money newsletter.
Free in your inbox each Friday.