A new mortgage can help save you some money.
But, don’t look now: rates on 15- and 30-year mortgages have fallen again, reaching historic lows. Refinancing may have been out of the question before, but with today’s very low rates you stand to save a heap of money by obtaining a new home loan.
New, Low Rates
So, how low are mortgage rates right now? Well, they are subject to daily change and the new figures will come out tomorrow. Late last week we learned that interest rates for a 30-year fixed-rate mortgage averaged 3.84 percent, down from 4.71 percent last year.
If you are in the market for a 15-year fixed-rate mortgage the news is even better as that rate has fallen to 3.07 percent down from 3.89 percent last year. If you’re a bit more adventurous, then you might want to consider an adjustable rate mortgage as the rate for a 1/1 mortgage is now at 2.7 percent.
Rates and Points
When shopping for a new mortgage, keep in mind that some lenders may want you to pay points toward closing your loan. For a 30-year mortgage that amount is averaging 0.8 percent which translates to a $1,600 fee for a $200,000 mortgage. Points on 15-year and ARMs are averaging 0.7 percent. Points, however, can be negotiated or avoided altogether. That is why you need a sharp eye and show savviness when negotiating for a new loan.
Another consideration for buyers are closing costs as these can add $3,000 to $4,000 to the cost of your loan. Those costs can sometimes be added to the loan, but you’ll also pay interest on it.
The following example can reveal whether refinancing is right for you. We’ve used a 30-year fixed-rate mortgage as the example with 0.8 points:
New Mortgage
Points: $1,600
Closing: $4,000
Loan: $200,000
Rate: 3.84 percent
Term: 30 years
Monthly payment: $936.47
Current Mortgage
Loan: $200,000
Rate: 4.71 percent
Term: 30 years
Monthly payment: $1,038.48
With the new loan you would save $102.01 per month. That equals $1,224.12 for the first year, but keep in mind you shelled out $5,600 in points and closing costs. It will take nearly five years to recoup your investment and you’ll also have one year longer to repay your loan.
Clearly, if you are seeking to refinance a mortgage you obtained last year, you need to eliminate points and reduce your closing costs as close to zero as you can get it. Otherwise, consider an entirely different approach such as taking on an ARM, especially if you plan to move in the next few years.
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