Mortgage rates are on the rise after nearly a year of record lows, providing a nudge to homeowners who want to refinance but didn’t get around to it yet.
Does it still make sense to call up your lender and file an application? There is time to figure it out. Here are some questions to consider:
First find the difference between your current mortgage rate and the potential savings of a refinance offer. The rate for a refi will vary based on the particular homeowner. Lenders consider credit history, income and home equity when evaluating applications.
The average rate on a 30-year mortgage rose to 3.05% for the week of March 11, according to Freddie Mac. While that is higher than historic lows reached last summer, homeowners with rates above 4% could still benefit from refinancing.
Consider how many months it would take for you to recoup the costs of closing on a refi, along with how long you’ll be staying at this home. If you can recoup closing costs within two years and plan to stay in your house for longer, the savings on interest means the math will likely work out in your favor.
What if closing costs are too high?
If the potential savings from a new mortgage won’t recoup the closing costs—like title insurance, state taxes, appraisal fees and more—it may not make sense to refinance just yet.
The national average for associated refinancing fees is nearly $3,400 with taxes, according to ClosingCorp, a firm providing residential real-estate data. This number hasn’t significantly changed as a result of the pandemic, said Bob Jennings, chief executive officer of ClosingCorp.
In some cases lenders are waiving appraisals—and the associated costs—due to concerns about social distancing. Ask your lender about the research process to ensure this doesn’t lead to an underestimate of the home’s true value.
I have an adjustable-rate mortgage. Is this the time to switch to a fixed rate?
Those with adjustable-rate mortgages might be looking to refinance to a fixed-rate mortgage so they can lock in these ultralow rates.
As you consider moving from an ARM to a FRM, first check where the loan is in terms of its adjustment cycle, and consider how often your rate adjusts. Most only do so every six or 12 months, which gives some homeowners more flexibility when it comes to exploring refinancing and saving up for the potential closing costs.
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