Mortgage Refinancing Activity Remains High
Opportunities Still Abound
Mortgage refinancing surged during the COVID-19 pandemic. The number of homes refinanced last year reached a high not seen since 2003. That refinancing activity is expected to remain strong in 2021 as interest rates are still near record lows.
As of the end of May, the mortgage rate on a 30-year fixed mortgage was around 3%. It is higher than the 2.65% rate seen at the start of the year, but still low in a larger context. Analysts predict that interest rates will continue to inch higher as the economy recovers from the pandemic. However, refinancing activity is expected to remain strong and surpass $1.8 trillion in total.
What is Refinancing?
Refinancing is the process of paying off a mortgage loan with new financing, ideally at a lower rate or with some other, more favorable, set of terms. Homeowners often look to refinance when it could benefit them in some way, like with a lower monthly payment.
It may be possible to refinance your mortgage loan into better terms if your financial situation has improved since you took out the original loan—especially when paired with relatively low market rates.
Factors to Consider When Thinking About Refinancing
On average, homeowners were able to lower their mortgage rate by 1.25% or more in 2020. While refinancing might be a great idea for some homeowners, it might not be the best choice for others. Refinancing generally makes sense for homeowners who plan to remain in their homes for three or more years. It typically takes five years to recoup the costs of refinancing a mortgage.
As the economy rebounds, interest rates are expected to rise somewhat, but will likely remain relatively low. For some homeowners, it could be a good time to refinance in order to save on monthly mortgage payments.
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