Is it Still A Good Time to Refinance?

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For most people, their mortgage payment is the largest bill they’ll have to grapple with all month. Unfortunately, if that expense suddenly becomes too high, there aren’t many ways to lower it. After all, it’s not as if you can decide to “scale back” or “use less” of your mortgage, the way you can with the grocery or electric bill.

However, there is one way to significantly lower your monthly housing payments: refinancing. When you refinance, you pay off your existing mortgage with another one. Most people do this to get a lower interest rate on their home loans, or stretch out the mortgage, both of which will lower your monthly obligation.

Refinancing in the recent past

Because refinancing your mortgage can be costly and time-consuming, people often passed on the option. But since mortgage interest rates hit rock-bottom after the Great Recession, refinancing has been very popular in the recent past. In fact, refinances made up over 50% of all mortgage applications last year.

This is because the unbelievably low rates of the past few years provided homeowners with a once-in-a-lifetime opportunity to snag rates that were several percentage points lower than what they were currently paying. However, interest rates began to rise in the middle of 2013, and since then, refinancing has been declining.

It’s still a good time to refinance

However, it’s important to remember that, in historical terms interest rates are still very low. The average rate on a 30-year, fixed-rate home loan has been hovering around 4.5%. True, it’s not the 3% that was available a few years ago, but it’s probably still much lower than what you’re paying, especially if you bought your home 10-15 years ago.

In other words, don’t shy away from refinancing because rates are going up a bit – there’s still time to lock in a really good rate, especially since they’re expected rise even more in the coming year.

Be mindful of refinancing costs

While rising interest rates might not be a reason to say no to refinancing, there are other factors to consider. For one, you won’t be able to refinance your home if you’re underwater unless you’re willing to bring a lot of money to the table. Also, refinancing requires you to pay closing costs all over again, which can also be expensive. This is why it’s important to do some calculations before committing to a refinance – it’s not the best financial decision for everyone.

If you’re on the fence about refinancing, now is a good time to get serious because rates are still very low – just be sure that refinancing makes sense in your financial situation.

About Lindsay Meredith

Lindsay is a high school teacher and personal finance blogger. She lives, works, and plays in the Washington, D.C. area.

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