Where Are Mortgage Refinance Rates Headed
Since the start of the coronavirus pandemic in 2020, rates have been hovering around historic lows. Industry experts say this wont last forever, and most expect rates to end 2021 higher and on an upward trend.
Nearer term, though, borrowers have caught another reprieve. With the Federal Housing Finance Agencys announcement that it will end the 0.5 percent fee on most refinances, you can expect rates to hold steady or dip in the next few weeks.
Meanwhile, Federal Reserve policy seems poised to keep interest rates on bonds low, which could keep mortgage rates favorable into the fall.
To see where Bankrates panel of experts expect rates to go from here, check out our Rate Trend Index.
Want to see where rates are right now? See local mortgage rates.Average mortgage rates
Should I Refinance If Interest Rates Are Low
When interest rates fall, the possibility of getting a lower mortgage rate is a strong reason to consider refinancing if you need additional funds. A reduction in your mortgage rate could lead to significantly lower monthly payments.
However, you must factor in the costs of ending your current mortgage, including any prepayment charges, as well as how long you expect to live in your home. Only then can you determine whether its worthwhile to refinance at a lower rate.
Consider A Mortgage Rate Lock
Mortgage rates fluctuate based on economic news, government reports, and policy announcements. As such, sometimes, experts can predict when they will rise or fall. You can use this knowledge to get a mortgage rate lock.
That lock freezes your mortgage rate in place, so rising rates dont affect yours. This is important to do as processing the loan can take weeks and the rate may change significantly during that time.
Make sure to ask a financial expert if this makes sense for you.
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Expert Insight On Mortgage Refinancing
To help answer all your questions, MoneyGeek spoke with industry leaders on refinancing and home lending. This panel will help you identify what to look for, when you should consider refinancing and how to avoid scams in the process.
More Manageable Lower Monthly Payments
Lower monthly payments can come with lower interest rates, but you can also lower your payments and have extra cash each month for other expenses by lengthening the term of your loan when you refinance the loan on your house. In that scenario, you would also be paying less toward principle every month, which means your expenses over the life of your loan would be higher. Youll need to crunch the numbers based on your own situation to see what makes sense. A reputable lender will walk you through the scenarios so you understand all the options before you make a decision.
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If You’re Thinking Of Refinancing Your Home Here’s What To Consider According To A Community Loan Officer
Selects editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.
Editor’s Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate as the Fed rate changes. CNBC will update as changes are made public.
During this era of economic uncertainty, refinancing your mortgage can give you some breathing room by lowering your monthly payments and/or saving you money over time. Americans are applying for refinancing loans at a 38% higher rate compared to last year, in part because the Fed slashed interest rates when the coronavirus pandemic hit and borrowing is now more affordable.
But at the same time, refinancing can be a little complicated, especially if your is less than ideal or you’re not completely sure what to expect.
When you refinance, it means you’re essentially taking out a brand new loan on your property, often for the remainder that you owe . Ideally, this new loan comes with better terms than your old one. This depends on a number factors, including how much equity you have in the house and what your credit score is when applying.
While refinancing sounds great on paper, it may not always put you in a better position. It’s best to weigh the pros and cons, taking your personal situation into account.
Are You Eligible To Refinance
Determining your eligibility for refinancing is similar to the approval process that you went through with your first mortgage. Your lender will consider your income and assets, credit score, other debts, the current value of the property, and the amount you want to borrow. If your credit score has improved, you may be able to get a loan at a lower rate. On the other hand, if your credit score is lower now than when you got your current mortgage, you may have to pay a higher interest rate on a new loan.Lenders will look at the amount of the loan you request and the value of your home, determined from an appraisal. If the loan-to-value ratio does not fall within their lending guidelines, they may not be willing to make a loan, or may offer you a loan with less-favorable terms than you already have.If housing prices fall, your home may not be worth as much as you owe on the mortgage. Even if home prices stay the same, if you have a loan that includes negative amortization , you may owe more on your mortgage than you originally borrowed. If this is the case, it could be difficult for you to refinance.
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When Should I Refinance My Mortgage
The reasons why you should refinance depend on your situation and your goals. If youre most interested in lowering the interest rate on your mortgage, here are a few times that its a good time to refinance:
- Interest rates are falling: Mortgage rates rise and fall when economic conditions change. If you took out your current mortgage when interest rates were higher than they are today, you could save thousands by refinancing.
- Your credit score improved: To get the best mortgage interest rates, youll want excellent credit. If your credit score has increased since taking out your current mortgage, you might be able to refinance at a lower rate.
- You can afford to switch to a 15-year mortgage: Most people take out a 30-year mortgage when they buy a home, because it makes their monthly payments more affordable. But interest rates on 15-year mortgages can be considerably lower.
If youre more interested in tapping your homes equity, the best time to refinance your mortgage is when:
- Home prices are rising: Rising home prices can give homeowners a bigger equity stake in their homes. Your equity is equal to your homes current value, minus what you still owe on the mortgage.
- Youve paid down your mortgage balance: Even if your home hasnt increased in value, if youve paid down some mortgage principal, you may have some equity that you can tap through a cash-out refinancing.
Learn More: When Should I Refinance My Mortgage?
How To Refinance A Loan
If you’re looking to refinance a loan, you should first examine the specifications of your current agreement to see how much you’re actually paying. You should also check if there is a prepayment penalty on your current loan, as the value of refinancing could potentially be outweighed by the early termination cost. After finding the value of your current loan, you can comparison shop between a few lenders to find the terms that best fit your financial goals.
Whether you’re looking to change term lengths or lower your interest rate, a variety of loan options are available on the markets today. With new online lenders looking to compete with traditional banks, there are services and packages tailored towards all financial goals. For the most qualified borrowers, this competition can help cut the costs of a loan by hundreds or thousands.
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Refinancing To Tap Equity Or Consolidate Debt
While the previously mentioned reasons to refinance are all financially sound, mortgage refinancing can be a slippery slope to never-ending debt.
Homeowners often access the equity in their homes to cover major expenses, such as the costs of home remodeling or a child’s college education. These homeowners may justify the refinancing by the fact that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source.
Another justification is that the interest on mortgages is tax-deductible. While these arguments may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision nor is spending a dollar on interest to get a 30-cent tax deduction. Also note that since the Tax Cut and Jobs Act went into effect, the size of the loan on which you can deduct interest has dropped from $1 million to $750,000 if you bought your house after Dec. 15, 2017.
Many homeowners refinance to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. Unfortunately, refinancing does not bring automatic financial prudence. Take this step only if you are convinced you can resist the temptation to spend once the refinancing relieves you from debt.
It takes years to recoup the 3% to 6% of principal that refinancing costs, so don’t do it unless you plan to stay in your current home for more than a few years.
Pros And Cons Of A Mortgage Refinance
A mortgage refinance is a major financial decision that shouldnt be made lightly. While a mortgage refinance has the potential to save you thousands of dollars over your mortgage term, there are inherent risks associated with refinancing that you need to be aware of. The table below summarizes the pros and cons of mortgage refinancing.
|Pros of refinancing|
|Potential to get a lower interest rate and save money.||Penalties may be higher than the savings.|
|Can consolidate debt with a lower overall rate.||Consolidating debt removes an incentive to pay it down faster.|
|Access to equity in your home.||Accessing equity puts you into more debt.|
|Allows you to swap to a variable or fixed rate.||Switching rate type is not always in your best interests.|
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What Do All These Refinance Terms Mean
When it comes to refinancing, there are a number of words and terms that you should become familiar with. Many of them are key variables that youll want to take into consideration to determine whether refinancing makes sense for you.
Heres a glossary of the most important refinancing terms:
Interest rate: This is the amount of money that your bank or credit union charges each year for lending you money in a mortgage. Its expressed as a percentage . The lower your interest rate, the less youre paying in interest. When you begin the process of refinancing your mortgage, you can typically get a mortgage rate lock, which guarantees that youll be able to get the current interest rate on your new mortgage while you proceed through the refinance process.
In some cases, you may be able to pay extra for a float down rate option, which protects you if market interest rates fall further while youre in the middle of refinancing by allowing you to release your rate lock and re-lock at a lower rate.
Annual percentage rate : This is the actual cost of a loan to a borrower. It differs slightly from the interest rate as it includes not just interest, but also additional costs charged by the lender. Again, its expressed as a percentage, and lower is better.
Fixed-rate mortgage: A type of mortgage in which the interest rate does not change for the entire length of the loan. A 15 or 30-year mortgage will almost always be at a fixed-rate.
What Does It Mean To Refinance A Loan
Loan refinancing refers to the process of taking out a new loan to pay off one or more outstanding loans. Borrowers usually refinance in order to receive lower interest rates or to otherwise reduce their repayment amount. For debtors struggling to pay off their loans, refinancing can also be used to get a longer term loan with lower monthly payments. In these cases, the total amount paid will increase, as interest will have to be paid for a longer period of time.
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Locking In Your Interest Rate
After you get approved, you may be given the option to lock your interest rate so it doesnt change before the loan closes.
Rate locks last anywhere from 15 60 days. The rate lock period depends on a few factors like your location, loan type and lender. If your loan doesnt close before the lock period ends, you may be required to extend the rate lock, which may cost money.
You might also be given the option to float your rate, which means not locking it before proceeding with the loan. This may allow you to get a lower rate, but it also puts you at risk for getting a higher one. In some cases, you might be able to get the best of both worlds with a float-down option, but if youre happy with rates at the time youre applying, then its generally a good idea to go ahead and lock your rate.
Refinancing To Shorten The Loan’s Term
When interest rates fall, homeowners sometimes have the opportunity to refinance an existing loan for another loan that, without much change in the monthly payment, has a significantly shorter term.
For a 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to 5.5% can cut the term in half to 15 years with only a slight change in the monthly payment from $805 to $817. However, if you’re already at 5.5% for 30 years , getting, a 3.5% mortgage for 15 years would raise your payment to $715. So do the math and see what works.
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Frequently Asked Questions About Mortgage Refinancing And Renewals In Canada
When can you start your mortgage renewal in Canada?
Mortgage Maestro can help you renew your mortgage as early as 120 days before the scheduled renewal date. Once we find the lender that best suits your needs, our team can finalize the paperwork with you.
When can you start your mortgage refinancing in Canada?
Mortgage Maestro can help you refinance your mortgage at any time. Give us a call and tell us about your financing needs and our mortgage advisors will find the solution to meet your requirements.
What is the difference between refinancing and renewing?
All homeowners need to renew their mortgages eventually . Refinancing, meanwhile, involves breaking your current mortgage and renegotiating it before the term has ended.
Blend And Extend Your Existing Mortgage
Your existing mortgage lender may offer you a blended rate essentially, a blend of your current mortgage rate plus any additional money you borrow at current market rates. Blended rates are almost always higher than the most competitive mortgage rates on the market, so make sure you compare the blended rate against the savings if you break your mortgage.
How Does Refinancing Work
The process of refinancing a mortgage is similar to the process of getting one in the first place. You typically start by shopping around and comparing interest rates and other terms with various mortgage lenders to see which has the best offer. Then you compare that offer with the terms of your existing loan.
If your credit has improved since you were approved for your first loan, you may have a good chance of qualifying for more favorable terms.
As you go through this process, keep an eye on the closing costs. For example, if refinancing your loan with a new lender costs $5,000 upfront, and your new monthly payment is just $100 lower than what you’re currently paying, you’ll need to stay in the home at least 50 months to make the move worth it.
Also, watch out for things like prepayment penalties, which can cause problems down the road if you pay off the mortgage early or refinance again.
Why Use A Mortgage Refinance Calculator
Refinancing your mortgage can be a really valuable option as a homeowner. However, there are costs associated with refinancing, which can outweight any potential savings you might make. As a result, it’s important to understand how much a mortgage refinance will cost you before you pull the trigger – that’s where a mortgage refinance calculator comes in handy.
The mortgage refinance calculator above will do the hard work for you, estimating the penalties associated with refinancing, as well as the potential savings you’ll make from getting a new mortgage at today’s rates. While there are some non-financial reason you might want to refinance your mortgage, our calculator gives you the information you need to start making a decision.
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Benefits Of Refinancing Your Mortgage
There are numerous benefits to refinancing your mortgage. While most of them revolve around reducing your monthly payment, a new mortgage can have a shorter term, stabilize your payment with a fixed interest rate or help you use the equity you have built up in your home. These are the most common reasons homeowners decide to refinance:
In most cases, homeowners can refinance their homes at any time to take advantage of savings or draw some of the equity for other use. Before signing any papers and making it official, its critical to understand all the costs of refinancing. These include going over your credit profile, understanding your credit score, finding the refinance quote that reflects your best options and determining how much you will pay in upfront costs.