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Mortgage rates have dipped to historic lows, and new buyers aren't the only ones able to take advantage of them. If you already have a mortgage, you may be able to shrink your monthly payment substantially by refinancing your existing loan.
In fact, an estimated 19.4 million existing borrowers could save an average of $309 per month by refinancing their mortgages, according to Black Knight. And the mortgage analytics company calculates that if every one of those candidates were to refinance, the result would be a record-breaking $5.98 billion in collective savings.
Not only that, but about 4.5 million candidates could save at least $400 a month by refinancing. And 2.7 million borrowers could save an average of $500 a month or more.
All of this data makes a pretty strong case for refinancing. But is that the right move for you?
Should you refinance today?
Refinancing your mortgage could save you a bundle, but only if you think you'll qualify for a substantially lower rate than you're paying today. To score today's top refinance rates, you'll need:
- A strong credit score
- A reasonable debt-to-income ratio
- A steady job that pays enough to support the loan amount you're asking for
If you don't meet these criteria -- say, you have a lot of debt or your credit score needs work -- then you may not get such great rate offers. But if you do meet these requirements, it pays to see how much your monthly payment could be slashed via a refinance.
Of course, even if you meet the above criteria, it's not automatically a green light to apply for a mortgage refinance. You actually shouldn't refinance if you're not planning to stay in your home for very long. The reason? Just as you paid closing costs when you first signed your mortgage, so too will those fees apply when you refinance. And like a regular mortgage, with a refinance, you might pay anywhere from 2% to 5% of your loan amount in closing costs. Therefore, you'll need to stay in your home long enough to recoup that outlay and come out ahead financially.
Imagine you shave $300 a month off of your monthly mortgage payments by refinancing. If you're charged $6,000 in closing costs to refinance, you'll break even in 20 months, which isn't bad. But if you're planning to sell your home in a year, clearly, refinancing doesn't make sense.
Take advantage of a great opportunity
One thing you should know is that beginning Dec. 1, a new 0.5% Adverse Market Fee will apply to mortgage refinances for loans equaling $125,000 or more. But even if your loan amount is such that you'll be charged that fee, it could still pay to refinance.
Furthermore, if your loan is right on the cusp of $125,000, you could pay off a small amount of it beforehand to avoid the fee. For example, if you owe your mortgage lender $130,000, you could get out of it by making a $5,000 lump-sum payment before you apply.
Either way, if you're interested in refinancing, shop around with different mortgage lenders to see what offers you qualify for. You may be surprised at just how much you stand to save.