Given recent rises in mortgage rates from extraordinarily low levels earlier this year, I have heard some pundits suggest that it may be too late to refinance a mortgage. While it may be too late to lock in the absolute lowest mortgage rate, I don't believe that means it is too late to refinance. In fact, now may be the perfect time for some homeowners to explore their mortgage refinance options. Here's why.
Rates are still low. Sure, mortgage interest rates have moved up, but with 30-year fixed rates still in the neighborhood of 4%, they remain very low historically, as illustrated in this table of rates on 30-year fixed rate mortgages (with points) from 1972 to 2013 (www.freddiemac.com/pmms).
Recent increases don't necessarily mean sharply higher monthly payments. For example, if a homeowner with a $150,000 mortgage refinances to a 30-year fixed rate mortgage with a rate of 4.0% today, he would pay about $716 per month in principal and interest. The monthly payment on the same loan at 3.5% would be about $674 or only $42 per month lower.
Many experts expect mortgage rates to continue to rise as the housing market heals and demand increases. If these predictions come true, then locking in today's rate, even if that rate is higher than was available earlier this year, will look like a savvy financial decision.
A successful refinance is not always just about getting a lower (or the lowest) rate. For example, if a home owner with an adjustable rate mortgage believes that mortgage rates are likely to continue to rise, refinancing to a fixed rate loan could make sense even at the same rate as on the old loan (and any reduction below that rate would be a nice bonus). Refinancing also might make sense for a homeowner who wants to shorten the term of his loan, which, even at the same interest rate, could result in thousands of dollars of savings over the loan's life.
There are refinance options for everyone today. As a result, a homeowner can probably find a loan that will help him achieve his personal goals for a refinance, whether that is to lower the monthly payment as much as possible, minimize the upfront cost of refinancing, reduce the total cost of the loan by paying it off more quickly, or lock in a fixed rate.
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- Interest Rates
- fixed rate mortgages