Refinance Activity Was Strong in January Despite Rising Rates
by Maurie Backman | Feb. 3, 2021
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.
Image source: Getty Images
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?
There's a reason homeowners rushed to refinance their mortgages during the second half of 2020. Refinance rates hit all-time lows, and so the idea of a new home loan was super appealing.
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?
The case for refinancing 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.
Get $150 off closing costs with Better.com Mortgage
This is one of the top lenders we've used personally to secure big savings. No commissions, no origination fee, low rates. Get a loan estimate instantly and $150 off closing costs.
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:
- Have a strong credit score -- ideally, at least a mid-700 or above
- Have a low debt-to-income ratio
- Have a steady job
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.
Make sure you'll break even
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.
A historic opportunity to potentially save thousands on your mortgage
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.
Our expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See our full advertiser disclosure here.
About the Author
Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
