by Maurie Backman | Jan. 18, 2021
Refinance rates are up a bit from last week but remain low overall. Should you apply for a new mortgage?
Mortgage refinance rates for both the 30- and 15-year loan rose a bit compared to Friday. While refinance rates tend to be a little higher than the rates you'll see for a new purchase mortgage, they're still quite competitive right now. This is what today's rates look like:
|Mortgage Refinance Type||Today's Interest Rate|
|30-year fixed refinance||2.942%|
|20-year fixed refinance||2.803%|
|15-year fixed refinance||2.415%|
The average 30-year refinance rate today is 2.941%, up 0.007% from Friday. At today's rate, you'll pay principal and interest of $418.37 for every $100,000 you borrow. That doesn't include added expenses like property taxes and homeowners insurance premiums.
The average 20-year refinance rate today is 2.803%, down 0.006% from Friday. At today's rate, you'll pay principal and interest of $545.04 for every $100,000 you borrow. Though your monthly payment will go up by $126.67 with a 20-year, $100,000 loan versus a 30-year loan of the same amount, you'll save $19,808.05 in interest over the course of your repayment period for every $100,000 you borrow.
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The average 15-year refinance rate today is 2.415%, up 0.012% from Friday. At today's rate, you'll pay principal and interest of $662.65 for every $100,000 you borrow. Compared to the 30-year loan, your monthly payment will be $244.28 higher per $100,000 in mortgage principal. Your interest savings, however, will amount to $31,337.99 over the life of your repayment period per $100,000 of mortgage debt.
Refinancing your mortgage can be a smart financial decision if you're able to reduce your interest rate and lower your monthly payments with a new home loan. However, there are a few important things to think about before you refinance.
First, if you extend your loan repayment term, you could end up paying a higher amount of total interest over time than with your existing mortgage. This can occur even if you qualify for a lower interest rate since you'd be paying interest over a longer period. You can avoid this by choosing a refinance loan with a shorter repayment term. Or you may decide you're willing to pay more interest over the life of your loan in exchange for a reduced monthly payment.
Second, you'll need to consider closing costs, which are the upfront fees you'll be charged when you refinance a mortgage. The Ascent's research revealed that closing costs on a refinance loan for a median value home total anywhere from $5,000 to $12,500. However, your closing fees will depend on the specific amount of your mortgage, your location, and your lender.
You should eventually make up for these closing costs due to your lower monthly payments -- but that can take time. If you save $200 per month by refinancing and pay $6,000 in closing costs, it would take 2.5 years to break even. It's important to run the numbers and consider whether you'll stay in your home long enough for refinancing to pay off.
Generally speaking, refinancing can make a lot of sense if you don't intend to move within the next few years and you're able to reduce the interest rate on your home loan by at least 1% (or somewhere in that vicinity). Despite the fact that mortgage refinance rates are up a bit from last week, they're still sitting near record lows, so many borrowers will find that it's a good time to refinance. This especially holds true if you have a really good credit score and a low debt-to-income ratio, because those factors will make you a more appealing loan candidate -- and that means you're more likely to qualify for a lower interest rate on your refinance.
If you're ready to get a new home loan, shop around for offers from different mortgage refinance lenders. But don't just look at the rates you're being offered -- pay attention to closing costs, too. Though it's generally possible to roll closing costs into your loan rather than come up with the cash for them up front, your best bet is still to keep those fees as low as possible.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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