Today, Freddie Mac announced mortgage rates have set a record: 30-year mortgage rates have dropped below 3% for the first time in almost 50 years. As the Wall Street Journal reports, interest rates for our country’s most popular mortgage have reached all-time lows for the past three consecutive weeks.
Although home sales lagged this spring, low rates have sparked an interest in mortgage refinancing—the process of paying off your old loan with the money from a new mortgage. You may refinance to change mortgage companies, loan terms or for lower interest rates. The underwriting process can vary but may be similar to buying a home.
As mortgage rates continue to drop, you may be wondering if and when to join the recent surge of new refinance applications. The answer is: it depends. Here are some factors you will want to consider before applying.
Closing costs: You will have to pay closing costs upfront or as part of your new mortgage. According to LendingTree, closing costs may range between 2% to 6% of your loan amount. This may include an application fee, loan origination fee, home appraisal and more. If a lender offers a no-closing cost refinance, they may charge you more elsewhere—like higher interest rates, for example.Interest rate: If you can reduce your mortgage rate by at least .5% to 1%, it may be worth it to refinance. But you should always calculate your break-even—including the total closing costs—before making a decision.Length of time: How long are you planning to stay in the home? If you expect to buy another home within a year or two, it may be difficult to recoup the upfront closing costs. But if you expect to stay put for several years or longer, it could pay off.Your creditworthiness: While it may be tempting to jump on low interest rates, you should also consider your credit score and job stability. Both factors may have a big impact on your ability to qualify for a mortgage refinance—and what rate you may be eligible for.G/O Media may get a commission
