Record-low mortgage rates have seen more people choosing to refinance their existing home loans to save money of late. A precautionary measure taken by the Federal Reserve to mitigate the effects of the coronavirus pandemic, the rock-bottom rates could potentially help homeowners save thousands of dollars.
But what if you’re retired and still owe money on your home? You might be wondering if refinancing is a good idea for you. Before deciding, check out this list of four things you should consider that will help make it easier to know if refinancing is a smart financial move at this time.
1. Today’s low mortgage rates
Interest rates are the key factor for anyone considering a mortgage refinance. Currently, per Freddie Mac, the 30-year fixed-rate mortgage is about 2.78 percent, while the 15-year fixed-rate mortgage is hovering around 2.32 percent. At this same time last year, the average 30-year fixed-rate mortgage was 3.69 percent, and the average 15-year fixed-rate mortgage was 3.13 percent.
With interest rates resting at almost a full percentage lower than last year, it could be an excellent time to refinance. If you haven’t refinanced for a while, you could reap substantial savings. For example, at the same time in 2005, the average interest rate for a 30-year fixed-rate mortgage was 6.36 percent, and the average 15-year fixed-rate mortgage had an interest rate of 5.89 percent. Homeowners who haven’t refinanced since 2005 could save more than 3.5 percent.
2. You can avoid a refinance fee
If you’re thinking about refinancing, you should act quickly. Beginning Dec. 1, an adverse market fee of .5 percent will apply to all refinances with a loan amount higher than $125,000. This fee is in addition to fees your lender charge. (According to the Federal Housing Finance Agency, the fee is to help offset projected COVID-19 losses.) You’ll want to start the mortgage refinance process now to avoid paying this new fee. Make sure to use an online mortgage refinance calculator to determine the potential monthly costs of your new loan term.
3. You can maximize savings
Refinancing a loan can cost several thousand dollars, so knowing how long you plan to stay in the house could affect your decision about refinancing your mortgage. In many cases, you should plan to stay in your home for at least five years to maximize your savings.
It may be beneficial if you plan to stay in the home long enough to recoup your losses, or refinancing your home would allow you to eliminate private mortgage insurance.
4. You have a lot left on the loan
Another major factor you should consider is how long you have left on your current loan. As interest rates remain at record lows, and likely will stay that way until 2023, refinancing a home loan becomes an enticing option. As a retiree, saving money on your mortgage payment could help you cover additional monthly expenses.