Mortgage Rates are Low—Should You Consider Refinancing?
Waiting around for a good mortgage rate can make you feel a little like a ballplayer who’s been warming the bench—except there’s no coach to tell you when to get in there and play.
It’s up to you to decide if the timing and terms of any new loan are right for you.
If you’ve been sitting on the sidelines for a while, wondering when and if to jump in and refinance, you’ve probably noticed that mortgage rates are fluctuating with economic news but are still lower right now than they have been since late 2016. Simply put, right now the market’s hot, and it might be time to start the mortgage refinancing process.
Interest rates dropped this summer , but started to trend upwards slightly in September. Previously, numbers were holding steady, but this slight drop could signal that it’s time to step on the court and start the mortgage review process. If you’ve been on the sidelines waiting to hop in, now might be time to consider refinancing your mortgage.
On average, rates for 30-year and 15-year loans are roughly 0.70% lower than they were this time last year. Depending upon the rate and/or term you currently have and the size of your mortgage, you could potentially save thousands in interest over the life of your loan by refinancing into a lower rate and/or term.
Yes, it can be exciting to follow interest rates waiting for the lowest possible number, but there’s also the potential for interest rates to rise. If you never take action on a low rate, you miss out on the potential to save in the long term.
Of course, you should only refinance if it makes sense for your financially. Refinancing isn’t as simple as reapplying and getting approved—often there can be costs involved with the process, and it might not make sense for you to reapply at this time based on your mortgage terms. But, if you think the time may be right for you to score better loan terms, here are a few things you might want to consider:
It May Pay off to Keep Checking Current Interest Rates
Mortgage rates can change daily, so it’s important to keep up to date on what’s out there and compare other lenders’ rates to what you’re already paying. A mortgage broker can do the looking for you by comparing the rate and terms of lenders they are approved to do business with and presenting you with the best options to fit your needs, or you can request rate quotes from direct lenders on your own.
Many will provide free rate quotes online or by phone (and follow up with a written quote) once you’ve provided them with some basic information. It may involve a “soft pull” of your credit, which in most cases, won’t impact your credit score.
This may give you an idea of where you stand, but to get a solid rate offer, you’ll likely have to go through a more thorough vetting process. It really comes down to calculating your monthly savings based on any applicable closing costs charged at your chosen rate and also figuring out your break even point.
And if your credit history, income, and other factors have improved since you took out your mortgage, you may be able to do even better with the financing terms on your new loan.
Before Signing on the Dotted Line, the Bottom Line Should Make Sense
Don’t forget about fees. Mortgage refinancing means getting into a whole new home loan—and that comes at a cost. Depending on the lender and the loan terms you choose, the cost could include fees like – bank fees, appraisal fees, attorney fees, and title insurance.
It’s recommended to consult with your tax advisor on any benefits or downsides to a new financial transaction. But if you can break even in a reasonable amount of time—and go forward with better terms—refinancing your mortgage may be beneficial.
There are also no cost loan options in which you can opt to take a bit of a higher interest rate than par , and built into that rate is rebate money to cover some or all of the loan costs. If the no cost rate is less than what you are paying now, this may also be an option to consider.
As a SoFi member, you can also save on loan processing fees. Home mortgage refinancing for eligible members includes a 50% or $500 discount on our loan processing fee, simply by being a part of the SoFi family.
Examining Your Old Loan Terms in Light of Your Current Living Situation
If your life has changed since you took out your mortgage, you may find a different kind of loan is a better fit. For example:
• Do you have a fixed-rate, 30-year loan, but plan to move out of your home much sooner? You may want to include adjustable rate mortgages (ARMs) in your refi search. With a 7/1 ARM for instance, you could get a lower interest rate for the first seven years, then the rate may change once a year—up or down—subject to rate caps. If you plan to move out and move on before the initial rate change, you could save money. It’s a good idea to employ extra due diligence when considering an ARM loan. Read all the disclosures on how the loan rate adjusts in the future. Ask the lender (and your tax advisor) questions about how the loan margin, index, yearly and lifetime rate caps work so you can fully understand the loan program before making any loan commitment.
• Has your financial situation changed since you took out your 30-year mortgage? Maybe you’ve climbed the corporate ladder and have a higher salary, or perhaps you got married and now have a two-income household. If you can afford a higher monthly payment, a 15-year mortgage with a lower interest rate and term can offer substantial interest savings over the life of the loan and might be the right choice, especially if this is likely your forever home. To see what that interest savings looks like, you can check an amortization calculator or do the math yourself.
Looking into Other Advantages Refinancing Can Offer
The decision to refinance can depend on multiple factors including your current mortgage interest rate and term, the potential new rate and term, applicable closing costs, any debt you may be paying off, and how long you plan to stay in your home.
But there are other benefits to consider when refinancing. With a “cash-out refi,” for example, a homeowner can potentially get a new mortgage for more than is owed on their current mortgages and take the difference back in cash. (A borrower usually must have at least 20% equity in a home to be eligible for this type of loan and other eligibility factors can apply.)
Some ways that cash out money could be used is to pay off or consolidate high-interest credit card debt or other higher rate loans, or to make home improvements. If that idea appeals to you, here are some things to consider:
• Keep in mind that when you increase the liens on your property and depending upon market value fluctuations, you may be decreasing the amount of equity available in your home.
• If the “cash-out refi” will be used for home improvements, and you have costs estimates available, it may be an option to consider in lieu of a home equity line of credit (HELOC). Unlike a HELOC, which is usually tied to a variable index and can have fluctuating payments, with yearly and lifetime interest rate caps, a cash-out refi can offer a fixed interest rate option, so monthly payments remain the same throughout the life of the loan.
Deciding when and if to refinance a mortgage can be daunting—but getting started doesn’t have to be hard. Once you’ve decided that refinancing your home can help you reach your personal and financial goals, look for a lender that’s offering competitive rates and no hidden fees.
And SoFi has mortgage loan officers (MLOs) and member specialists that can help resolve any issues or questions you might have. Deciding when and how to refinance a mortgage can be tricky, but having the right help and guidance can make all the difference.
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