Mortgage rates stayed at just over 3% – More good news for homeowners looking to refinance

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The 30-year average fixed mortgage rate held steady at 3.04% last week. But mortgage rates for the past two weeks are the lowest we’ve seen since February.

Prices fluctuate daily. While today’s mortgage interest rates are slightly higher than the historic lows of January 2021, they have been consistently well below historical averages overall. For buyers and homeowners looking to refinance, this means there is still time to take advantage of these historically low mortgage rates.

About the latest mortgage rates

Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which, like NextAdvisor, is owned by Red Ventures.

But there are plenty of other factors beyond rates to consider before you act. It’s a notoriously tough market for buyers right now. Home prices have increased dramatically over the past year, which means you may need to take out a larger loan with the same down payment. Even with a lower interest rate, the larger loan could wipe out any potential savings you might have otherwise had.

However, current homeowners can take advantage of these low rates to refinance. Refinancing can offer several financial benefits, although there are a few things to consider when deciding if it’s time to refinance.

The advantages of refinancing: example

Here’s an example showing how refinancing can result in a lower monthly payment and less interest paid over the life of a loan:

  • Purchase value of the home: $ 500,000
  • 10% deposit: $ 50,000
  • 30 year mortgage
  • 4.25% interest rate on the $ 450,000 loan (after down payment)

If you’ve been paying off the loan for five years, you would have a loan balance of about $ 408,000, according to the NextAdvisor mortgage calculator.

By taking out a new 30-year refinance loan at 3.125%, you reduce your monthly payment by $ 466 and save approximately $ 32,919 in interest.

Loan balance Interest rate Principal and monthly interest Total interest remaining
Loan balance after 5 years $ 408,000 4.25% $ 2,213 $ 254,298
Refinancing loan amount $ 408,000 3.125% $ 1,747 $ 221,379
Difference 1.125% $ 466 $ 32,919

Keep in mind that in this scenario, you would be extending the term of your mortgage payments by five years. It can still make sense in terms of interest savings, but if you’ve been paying off a mortgage for more than 5 years, a better bet might be to refinance a shorter term mortgage. This may come with a higher monthly payment, but the interest savings could be even greater.

How to decide if refinancing makes sense for you

Refinancing your mortgage can be smart money, depending on your financial goals. First, think about what’s most important to you in the short and long term. For example, are you looking to lower your interest rate to minimize the total interest paid over the life of the loan? Or maybe you are interested in reducing your monthly payments so that you can save and invest sooner?

Whatever the current interest rate situation, it’s important to take the time to examine your personal situation so that any action you take aligns with your goals and circumstances. Here are some scenarios to think about.

How refinancing can improve your credit

If you decide to use your monthly savings to pay off your debt, you could improve your credit as well. Part of your credit score is affected by the amount of your debt. Having less debt compared to your total available credit usually results in a higher credit score. With a higher credit score, you would benefit from lower interest rates on other loans, such as a mortgage or a car loan.

How refinancing could help your retirement plans

Refinancing your home to lower your mortgage payments means you’ll have extra money each month to save for an emergency fund, pay off high-interest debt, or invest in retirement. By saving and investing earlier, you can harness the power of compound interest.

For example, if you invested $ 200 per month between the ages of 25 and 65 at a 7% rate of return, your investments would be worth around $ 500,000, according to the NextAdvisor savings calculator. Waiting until age 35 to invest the same amount, however, would give you less than $ 240,000 by the time you reach age 65.


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