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Why it's high time to stop stalling and refinance your mortgage already

Ethan Rotberg
·3 min read
Why it's high time to stop stalling and refinance your mortgage already
Why it's high time to stop stalling and refinance your mortgage already

Mortgage rates have been at all-time lows throughout the coronavirus pandemic, but millions of homeowners seem to be procrastinating on refinancing their home loans.

Experts expect rates to climb higher by year’s end — and we’ve already seen a bit of upward movement surrounding President Joe Biden’s inauguration — so if you’ve been holding off on shrinking your mortgage payments, now is the time to refinance to an ultra-low mortgage rate.

Here are a few reasons you shouldn’t wait to refinance your home loan.

All-time lows mean more savings

Mortgage rates started a cascade of rate drops back in March and have set new lows 17 times along the way.

The average rate for 30-year mortgages continues to hover near record lows today, now at 2.73% according to mortgage giant Freddie Mac, while 15-year fixed-rate mortgages, a popular option for refinancing, are averaging 2.20%.

Refi requests have exploded over the past year, but many homeowners are still watching from the sidelines. More than 19 million mortgage holders could save an average of $308 by refinancing today, according to the mortgage technology and data provider Black Knight.

Already refinanced once before? There’s no limit to the number of times you can replace your home loan. Just make sure your credit score is in good shape before applying again.

Rates may be on an upward trend

View of United States Capital through the trees
mrsashko / Shutterstock

After diving lower and lower in 2020, the new year saw a sudden mortgage rate spike, though rates have eased in recent weeks.

Lenders will be on the lookout for signs of economic recovery before raising rates — and that may very well be underway with the COVID-19 vaccine rollout.

Meanwhile, Biden is rushing to get more stimulus money into the hands of Americans. More spending from Washington could lead to more Treasury debt and higher interest on Treasury bonds. Mortgage rates tend to take their cues from Treasury bond rates, or "yields."

A Freddie Mac forecast, released in mid-January, sees average 30-year mortgage rates nearing 3% this year — a bargain compared to a year ago, but still well north of where rates stand today.

Fixed beats adjustable-rate loans right now

While the starter rates on adjustable-rate mortgages, or ARMs, traditionally trend lower than rates on fixed-rate home loans, currently they’re neck and neck — meaning homeowners can lock in ultra-low interest rates for the duration of their loan.

This week, 5/1 ARMs are being offered at an average initial rate of 2.80%, which is higher than the current average on 30-year fixed-rate mortgages (2.73%).

With a 5/1 ARM, the rate is fixed for the first five years and then can "adjust" every (one) year.

Last year at this time, the ARM introductory rates were averaging 3.24%, while the average for a 30-year fixed was a stiffer 3.51%.

How to find the best refi rate

Businesswoman typing and looking through magnifying glass against bleached wooden planks background
wavebreakmedia / Shutterstock

Though average mortgage rates are low, you’ll still need to do some work to land a rock-bottom loan offer. Here are a couple of ways you can score a low mortgage rate for your refinance.

Be the best borrower you can

Start by takng a peek at your credit score. A lender wants to feel confident you won't have any problems paying back a loan, and a very good (740 to 799) or excellent (800 or higher) credit score will help provide that assurance.

These days it’s easy to see your credit score for free, and some services will even help you monitor it so it stays high.

Shop around

You shop around when booking a hotel, right?

Research from Freddie Mac shows borrowers can save thousands of dollars by comparing at least five rate quotes, instead of just saying yes to the first offer.

Don’t forget to use those same comparison shopping skills to save money when it’s time to buy or renew your homeowners insurance. You can find the coverage you need, and still cut hundreds of dollars from the annual price.