by Maurie Backman | Feb. 3, 2021
It's still a good time to look into a mortgage refinance from an interest rate perspective. Should you apply for a new home loan?
Refinance rates crept upward for much of last month, though -- but that hasn't stopped borrowers from applying for new loans. In fact, rate lock activity tied to refinancing rose 10% during the first half of January 2021 according to mortgage analytics company, Black Knight. It's up 90% from the same time frame in 2020. This means rising rates clearly didn't spook borrowers so much.
But what about you? Should you look into refinancing your home loan today?
If you're already paying a very low interest rate on your mortgage, refinancing may not make sense. But if you're able to lower your loan's interest rate by 1% or more, it could pay to refinance.
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In fact, Black Knight projects the average refinance candidate today could save $303 a month by getting a new home loan. Based on the number of people it estimates are eligible for a refinance, that would result in $5.2 billion per month of savings if everyone took advantage of that opportunity.
Of course, the whole point of refinancing is to walk away with maximum savings. As such, if you're going to refinance, you'll want to make sure you're in a strong position to snag the most competitive rates. To that end, you'll need to satisfy some requirements:
Some homeowners mistakenly think their existing mortgage guarantees them a competitive refinance rate. Not so. In fact, if your financial picture has changed for the worse since you signed your current home loan, you may not get approved to refinance at all.
Another thing you should know is that each refinance lender sets its own rates and closing costs. As such, it pays to shop around. Your existing lender is certainly a good place to start, but don't assume that's the best deal you'll get. You may find that another refinance lender can give you a lower interest rate, more affordable closing costs, or both.
Speaking of closing costs, make sure you plan to stay in your home long enough for refinancing to make sense. If you're charged $6,000 in closing costs to refinance and you lower your monthly payments by $300, it'll take 20 months to break even. Make sure you intend to keep owning your home beyond that point -- otherwise, refinancing doesn't pay.
All told, now's a good time to refinance based on interest rate trends. Rates did start to come back down during the second half of January. But, to be clear, they were competitive all month long. And there's a good chance they'll stay that way for the rest of 2021, and possibly beyond.
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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