2020 was a booming year for the mortgage refinance industry, and 2021 is on track to follow suit. Thanks to historically low interest rates, millions of homeowners have refinanced their home loans over the past year. At the end of December, refinance loans were up 105% from the previous year, according to the Mortgage Bankers Association.
If you haven’t refinanced your mortgage to take advantage of the record low mortgage refi rates, you might find yourself wondering whether it’s really worth it. Multi-lender marketplace Credible can help guide you through the refinance process — showing you estimated monthly payments, loan terms and more — to make your decision a little easier.
3 signs a mortgage refinance is right for you
Do low mortgage rates outweigh the added fees and closing costs you might take on? Let’s talk about some things to consider to help decide if a refinance is right for you. Here are three signs it may be time to refinance your mortgage:
- You want to change your loan term
- You plan to stay in the home
- You want to secure a lower interest rate
1. You want to change your loan term
If you're unable to keep up with your monthly payments and want to save money now, you may want to switch to a longer loan term. This way, you can keep up with the bills. On the other hand, if you're set financially and you want to switch to a short-term loan — like a 15-year mortgage, then you can pay off your mortgage earlier and save more over the life of your loan (though you will have higher monthly payments).
There are pros and cons of both 30-year and 15-year mortgage terms. So, just make sure you do your research before making any major changes to your loan terms. Credible can help you compare rates for each and determine what best fits your financial needs.
Just note that a lower interest rate can save you money. But if your refinance loan increases the number of years it will take you to pay off your house, you might still end up paying more in interest.
2. You plan to stay in the home
A mortgage refinance isn’t profitable right away. Instead, you have to save enough on interest to compensate for the costs associated with refinancing a mortgage. Typically, the rule is you should plan on staying in your home for at least five years in order to make the most out of a refinance and maximize savings.
To determine whether a mortgage refinance is worth it, you’ll have to crunch the numbers for yourself. Find your break-even point, which is the number of years it will take for the refinance to pay off. If you plan to stay in the home past your break-even point, refinancing might be the right choice. Compare rates and lenders instantly via Credible.
You can also use an online refinance calculator to estimate your potential monthly costs after a refinance.
3. You want to secure a lower interest rate
Just remember: With a new loan comes new closing costs. Depending on your loan agreement, you might either pay all fees and closing costs at the closing or have them wrapped up into the new loan amount. In other words, you’ll either end up with a larger loan amount than you had before or less money in the bank.
Is now a good time to refinance?
The coronavirus outbreak rocked the U.S. economy in more ways than one. And while most of the financial outcomes of the pandemic have been negative, record-low interest rates have been the one upside for many consumers.
Shortly after the pandemic broke out in early 2020, the Federal Reserve slashed interest rates to help boost economic growth. As a result, mortgage rates consistently fell throughout the year, reaching a record low in the first week of 2021, according to Freddie Mac. These historically low rates make it an excellent time to refinance and potentially save tens of thousands of dollars over the life of your mortgage.
How to get started refinancing your mortgage
If you feel confident that refinancing your mortgage is the right move, now is the perfect time to do so. It’s impossible to know for sure what will happen to mortgage rates in the future, but the mortgage refinance rates will eventually increase.
To start, first, decide what type of mortgage refinance you’re looking for. While many mortgage borrowers opt for a 30-year fixed-rate loan, a 15-year loan could land you a lower rate and save you even more money.
Once you know what you’re looking for, shop around for the best deal. You can use Credible to get rates from a few lenders to ensure you’re getting the best rate available to you. Go into the process knowing what rate you need for the refinance to be worth it for you. If you want to learn more about refinancing your mortgage, visit Credible to get in touch with experienced loan officers and get your questions answered.