It’s been a big week. For the first time, the 10-year Treasury note’s yield dropped below 1 percent, triggering mortgage rates to fall to historic lows. The Federal Reserve also made two unanticipated rate cuts, nearing zero percent. All moves were linked to the spread of the coronavirus.
The 30-year fixed-rate has dipped even further to 3.36 percent, around its lowest level in almost 50 years. With “once-in-a-lifetime” rates as low as this, homeowners who refinance to shorten their loan term could save thousands of dollars in interest.
8 signs your bank account could benefit from a refinance
Shortening a loan term can be a smart choice at a time when mortgage history is being made. Right now, converting from a standard 30-year home loan to a 20- or even 15-year loan term can offer significant savings. Today’s 15-year fixed mortgage rate is just 2.77 percent.
Reduce a loan’s term, and your payment may not necessarily change, but you’ll pay off your mortgage sooner. This may save you upwards of $42,000 in interest.
Otherwise, you could keep your 30-year loan term and refinance to lower your monthly payment. Refinancing a $250,000 median-priced mortgage at roughly 4.5 percent interest to today’s rate of around 3.36 percent may make a monthly mortgage payment about $164 cheaper. Annual savings could add up to close to $2,000.
Refinance applications are up 224 percent from a year ago, according to the latest Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey.
That’s because millions of homeowners could take advantage. Black Knight’s “First Look” for early 2020 confirmed that close to 22 million homeowners may save at least three-quarters of a percentage point if they refinance. Since mortgage rates just reached a new record low, this number is likely to be higher.
There are a few ways to tell if it’s the right time to refinance. You may:
- Be looking to lower your current interest rate.
- Have improved your credit score.
- Want to lower your monthly mortgage payment.
- Hope to shorten your loan term and pay your mortgage off early.
- Want to change your loan terms.
- Would like to consolidate your debts.
- Have an unexpected need for cash, i.e., kids going to college.
- Need money for home improvements or upgrades.
Ready to refi? Here’s a local loan officer who can help.
When market mortgage rates are over 1 percent lower than your current mortgage rate — as is the case for millions of today’s homeowners — it’s a good idea to meet with your loan officer.
In fact, keeping the same mortgage rate for the life of a loan isn’t necessarily encouraged. It’s not an industry standard. As a rule of thumb, having a regular mortgage check-in can help ensure a loan’s numbers, and its savings, are still competitive.
Refinancing can pay off when rates are low or if your home’s value has recently increased. With home equity up $5,300 on average across the U.S., both factors may make most homeowners eligible for a refinance.
Save thousands with a shorter loan term and a record-low rate
Lock in a 50-year-low mortgage rate today, and you’ll automatically lower your monthly payment. Or, you could reduce your loan term to pay down mortgage debt, while keeping your payment the same. Download LoanFly to find out your refinance options.
*MBS Highway payment estimate, 2020. Rates listed are for illustrative purposes only.
While refinancing could make a significant difference in the amount you pay each month, there are other costs you should consider. Plus, your finance charges may be higher over the life of the loan.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.