Failure to know your mortgage rate can be an expensive mistake, especially in this rising interest rate market. According to a recent survey by Bankrate, however, almost 3-in-10 mortgage holders (29 percent) either didn’t know their mortgage rate or wouldn’t say.
The average rates on 10-, 15- and 30-year fixed finances have risen from a year ago, according to Bankrate’s weekly survey of large lenders. The benchmark 30-year fixed-rate mortgage rose to 4.70 percent as of July 11, 2018, from 4.13 percent a year earlier. A $200,000 mortgage with a 4.70 percent interest rate costs $119 a month more in interest than the same mortgage with a 4.13 percent rate. As rates and mortgage amounts rise, the impact on your bottom line increases. Over time, this difference in rates can cost you thousands of dollars, which might mean it’s a good time to refinance your mortgage.
By paying off the remaining balance on your current loan and getting a new one, you can get a new rate, new terms, or a new rate and new terms. You can get a cash-out refinance where you tap into the equity to extract cash and then get a new mortgage. You can even pay money in and take out a smaller mortgage.
Those with adjustable rate mortgages may be good candidates for refinancing. As mortgage rates climb, so will your monthly payments. If you lock in a fixed-rate mortgage now, you may be able to save thousands of dollars later. The same is true for people with high-rate mortgages who have since improved their credit.
If you have outstanding higher-rate consumer debt and an above-market mortgage interest rate, a cash-out refinance might be a good option. That way you can consolidate all the debt into one presumably more affordable monthly payment.
Be sure to calculate when you’ll break even on the new mortgage by taking into account the costs of refinancing and any prepayment penalty for paying off your mortgage early. On average, borrowers can expect to pay between 3 and 6 percent of their balance in refinancing fees. Costs might include:
Application fee —
This charge varies by lender and is used to cover processing your application and credit report. The cost ranges from $75 to $300.
Loan origination fee —
The lender charges this fee for preparing your loan. This may be between 0 percent and 1.5 percent of the loan principal.
You might pay loan-discount points, which is a one-time fee for reducing the interest rate on your loan. Each point is equal to 1 percent of the amount of your mortgage. There is another point-based fee charged by lenders to earn money on the loan. This latter fee of up to 3 percent of the loan principal can sometimes be negotiated.
Other fees might include —
• Appraisal fee
• Title search/title insurance
• FHA, RDS, or VA fees or PMI
• Homeowner’s insurance
• Attorney review
Sometimes these fees can be rolled into your new mortgage, or the lender will pay them in exchange for a higher interest rate. Refinances that don’t require borrowers to pay these up-front fees are known as “no-cost” refinancing.