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Is Mortgage Refinancing Right For You?


Low mortgage rates have helped fuel the competitive housing market, but for some homeowners, they offer the opportunity to save money through mortgage refinancing. For those who are reluctant to refinance, several factors should be taken into account.

“If homeowners are in a situation where they have good credit and are currently paying a rate greater than or equal to 3.5%, I highly recommend considering this refinance as there are rates well below 3%” , said the chief financial officer of Bankrate.com. analyst Greg McBride told CBSN Thursday. He said their consumer finance company had seen homeowners lock in 30-year fixed rates at around 2.75% in recent days. “So, you know, there is a substantial savings there. It’s a way to reduce those payments – $ 200, $ 300 a month.”

Mortgage rates have risen this year from record lows at the height of the coronavirus pandemic in 2020. But interest rates remain low with the 30-year average fixed mortgage rate at 3.28% and the rate of 30-year average refinancing at 3.29% as of Thursday, according to Bankrate.

Look for “the best deal at all”

As a general rule of thumb, if interest rates are lower than your original loan and you are able to reduce your rate by at least half a percentage point, refinancing might be worthwhile. Some homeowners may also want to refinance in order to move to a shorter term loan, a 30 to 15 year mortgage, where they may be able to pay off the balance faster with less total interest.

But keep in mind the additional costs associated with refinancing, including set-up and appraisal costs, as well as title insurance or taxes. McBride recommends getting quotes from three different lenders and researching “the best overall deal” that includes cost accounting – not just the best rate.

Another way for consumers to lower their interest rates, whether they are buying a home or refinancing, are mortgage points or “discount points”.

“It’s just a way to lower your interest rates. And one point is 1% of the loan amount, so if you borrow $ 300,000, one point will cost you $ 3,000,” McBride explained. “It’s actually prepaid interest. This point can lower your interest rate by a quarter of a percentage point. Over time, those savings really add up.”

Time is the key, he added.

“The breakeven point on points – usually about six years old. So for cash strapped people, I’m not a big fan of it, especially with rates as low as they are,” he said. McBride said.

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