Falling mortgage rates are pushing borrowers to refinance. Should you?


In October, refinancing lenders saw less activity as rising mortgage rates prevented existing borrowers from swapping home loans for new ones. But last week, refinancing demand rose 7% from the week before, according to the Mortgage Bankers Association. This is probably due to the fact that mortgage rates fell after rising during the latter part of October.

If you’ve had the same mortgage for years, you may be considering refinancing. But is it the right time now?

Refinancing rates are low

From an interest rate perspective, now is a great time to refinance a mortgage. At the time of this writing, the average refinance rate for a 30-year loan is 3.266%. However, you may be eligible for a higher or lower interest rate, depending on the rates in your part of the country and your credit score.

What do your projects look like?

While today’s refinance rates justify getting a new mortgage, whether it pays off will depend on your particular situation. If you think there is a chance that you will be moving in the short term, then refinancing usually won’t make sense.

Why is it important to move or not? When you refinance a mortgage, you are charged closing costs, just like you are required to pay closing costs to finalize a mortgage for a home you buy. You will need to make sure that you intend to stay in your home long enough to recoup your closing costs and save money.

Typically, closing costs are 2% to 5% of a loan’s total. Now, let’s say you refinance a $ 300,000 mortgage and pay 2.5% closing costs, or $ 7,500, to finalize that new loan.

During refinancing, you could reduce your monthly mortgage payment by $ 250. But based on your $ 7,500 stake, it will take you 30 months to break even. You will not save on your accommodation costs until your 31st month in your accommodation. If you think you may be moving out of your home before 31 months, you may want to reconsider refinancing.

Are refinancing rates going to increase?

Mortgage rates can fluctuate from day to day, week to week and month to month. Since rates have been so competitive since last year, it’s fair to assume they’re likely to start climbing at some point in the future.

But that doesn’t mean we’re looking at drastic hikes. On the contrary, the rates can gradually increase. Since they’re so competitive right now, that means you still have plenty of time to get a new affordable mortgage if you choose to go this route.

In fact, if your credit score isn’t good, it’s worth working on improving it before you apply for a refinance. If that means waiting six months, so be it. You may end up with a slightly higher mortgage rate if you refinance in six months. But if you are able to dramatically increase your credit score by then, that alone could generate enough savings to more than make up for a slightly higher mortgage rate.


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