Why It’s Still Worth Refinancing Your Mortgage Now — Except in This Situation

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Refinancing has been a buzzword over the past year or so, as interest rates have fallen to all-time lows and millions of homeowners have taken advantage. However, market data suggests that there are still millions of American homeowners who haven’t budged with their mortgage or other high-cost debt. If you’re one of them, here are the two primary reasons why now might be the time to refinance your mortgage — along with one reason why you should simply stay put.

Take a Look: Here’s How Much Mortgage Rates Have Fluctuated Over the Past Decade
Helpful: Tips To Get Your Mortgage Payments as Low as Possible

Rates Are At/Near All-Time Lows

The primary reason why any homeowner would want to refinance their debt is to save money. In 2021, rates hit the lowest they had ever been, with fixed-rate 30-year mortgages bottoming out at 2.65% in the first week of January. As of early August 2021, rates are a bit above that level, at an APR of about 3.04%. Unless you took out a mortgage within the past year, it’s likely that you’re currently paying a higher rate. If you refinance to a lower-rate mortgage, your monthly payment will be smaller, and over the life of a typical 30-year mortgage, even a small reduction can add up to real savings. 

Save for Your Future

Helpful: How Interest Rates Affect Your Wallet and the Bigger Economic Picture 

Here’s a simple example: Imagine you have a $300,000 mortgage at 4.25%. Your monthly payments, before any add-ons like PMI or property taxes, would be about $1,476. After 30 years, the total cost of your mortgage would be $531,295. If you refinanced to a 2.85% mortgage instead, your monthly payments would drop to $1,241. Not only would you save $235 per month, but the total cost of your mortgage would drop to $446,642, a net savings of nearly $85,000.

See: Here’s How Much Debt Americans Will Have Due To the Coronavirus, by State

Rates Are Likely To Rise

No one can predict the short-term direction of interest rates, but it’s clear that at some point, rates are going to rise. Although mask mandates are returning in the wake of the Delta variant of the coronavirus, the economy as a whole is already on the path to recovery. With the federal funds rate at a range of 0%-0.25% and mortgage rates near all-time lows, there isn’t much room left on the downside. It may not happen tomorrow or even before the end of 2021, but rates will likely be higher than what’s available now in the relatively near future.

Find Out: How Much Debt Americans Have at Every Age

Why You Might Want To Stay Put

If you refinanced recently, or if you already have a rate of about 3.5% or lower, you might not want to go to all the effort to refinance. While you might be able to snag a rate below 3%, once you factor in all the costs of refinancing it might not be worth your time. Remember that when you refinance a mortgage, you’re effectively taking out a new mortgage to pay off your old one. This means that you’ll still have closing costs to deal with on your new mortgage, and those can add up considerably. Sit down with a mortgage broker or do the math yourself to determine if refinancing your mortgage makes mathematical sense for you before you jump into a new mortgage just a few tenths of a percent below your current rate.

Save for Your Future

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Last updated: Aug. 11, 2021

About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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