Is it a good time to get a new home loan? Here's what to consider.
Refinancing a mortgage is a great way to make your home loan more affordable, or to make that loan work better for you. But is now a good time to refinance? Here are some things to consider.
When is it smart to refinance?
When you refinance, you swap your existing home loan for a new one. That new mortgage may have a lower interest rate and a shorter or longer repayment period than your current loan. Your new loan might also allow you to borrow more than what you currently owe on your home.
If you're asking yourself, "Why should I refinance my mortgage?" make sure your answer fits at least one of these criteria:
- You can snag a lower interest rate on your loan.
- You can lower your loan's monthly payments.
- You can change your loan term in a way that benefits you. (For example, shorten your mortgage to a 15-year loan so you can pay it off sooner, or switch from a 15-year loan to a 30-year loan to make your monthly payments more affordable.)
- You can do a cash-out refinance that allows you to use your excess money to consolidate debt or tackle home renovations or improvements.
- You have an adjustable-rate mortgage and you want to lock in a fixed rate before your current rate starts to climb.
To be clear, refinancing won't always lower your monthly payments, and it won't always result in a lower interest rate on your loan. This is especially true if you were to go from a 15-year loan to a 30-year loan.
Even so, refinancing can still make sense. For example, if you go from a 30-year loan to a 15-year loan, your monthly payment may increase, but your interest rate may go down so that you pay less interest to your lender in total.
That said, you shouldn't refinance if:
- You won't lower your loan's interest rate or save money on your monthly payments.
- You won't stay in your home long enough to break even on your refinance after paying for closing costs on that loan. For example, if you pay $5,000 to refinance and that results in a monthly savings of $250, it will take you 20 months to break even. So if you plan to move in 18 months, refinancing isn't worth it.
Is now a good time to refinance?
Clearly, whether it's a good time to refinance or not will depend on your specific circumstances. But from a general interest rate perspective, now is a good time to get a new home loan. The average refinance rate, as of this writing, is:
- 3.225% for a 30-year fixed loan
- 3.031% for a 20-year fixed loan
- 2.542% for a 15-year fixed loan
Now keep in mind that refinance rates can fluctuate from day to day, and these are just averages. Depending on where you live and factors like your credit score, you may qualify for a higher or a lower rate on your new loan. But based on these average rates alone, refinancing makes sense right now, since these numbers are very competitive on a historical basis.
We also don't know whether refinance rates will climb in the course of the year, hold steady, or decline. What we do know, however, is that refinance rates rose a bit in March and the first part of April before dropping back down to where they're at today. If you wait a month to refinance, you may see that rates are slightly higher or lower -- there's no way to predict exactly where they'll fall.
If you're interested in refinancing, shop around with a few different mortgage refinance lenders and see what rates and closings costs they come back with. Comparing offers will help you choose the best deal -- and reap the most benefits.
For more information, check out our mortgage refinancing 101 guide to learn how to get started.
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