by Maurie Backman | Aug. 4, 2021
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Mortgage refinance rates have fallen. Should you apply for a new home loan?
Mortgage refinance rates have fallen overnight once again. Refinance rates tend to be a bit higher than the rates you'll see for a new purchase mortgage, but right now they're extremely competitive, historically speaking. Here's what they look like on Wednesday, Aug. 4:
|Mortgage Refinance Type||Today's Interest Rate|
|30-year fixed refinance||3.025%|
|20-year fixed refinance||2.780%|
|15-year fixed refinance||2.317%|
Secure access to The Ascent's free guide that reveals how to get the lowest mortgage rate for your new home purchase or when refinancing. Rates are still at multi-decade lows so take action today to avoid missing out.
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The average 30-year refinance rate today is 3.025%, down 0.016% from yesterday. At today's rate, you'll pay principal and interest of $423.00 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 2.780%, down 0.017% from yesterday. At today's rate, you'll pay principal and interest of $544.00 for every $100,000 you borrow. Though your monthly payment will go up by $121.00 with a 20-year, $100,000 loan versus a 30-year loan of the same amount, you'll save $21,721.00 in interest over the course of your repayment period for every $100,000 you borrow.
The average 15-year refinance rate today is 2.317%, down 0.001% from yesterday. At today's rate, you'll pay principal and interest of $658.00 for every $100,000 you borrow. Compared to the 30-year loan, your monthly payment will be $235.00 higher per $100,000 in mortgage principal. Your interest savings, however, will amount to $33,775.00 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 with 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 close). And even if you don't manage to shave 1% off of your loan, refinancing could still benefit you. You may, for example, be eligible for cash-out refinance if you have a lot of equity in your home. That could allow you to borrow money affordably for any purpose.
If you're ready to get a new mortgage, contact different refinance lenders and see what rates and closing costs they come back with. Keep in mind that the higher your credit score, the more competitive a mortgage rate you're likely to snag. But having great credit may not stop a lender from charging higher fees to finance your loan, which is why it's important to compare rates and closing costs before moving forward.
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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