At least once a week, we’re advising a client to look into refinancing their mortgage while rates are still at rock-bottom levels.
But just like the saying about the cobbler’s children who have no shoes, I’ve not made the time to put my own advice to work and refinance my own mortgage.
Until last week, that is.
I finally bit the bullet and refinanced, and want you to know there’s still time for you to do so. In fact, there could scarely be a better time.
Certainly, no one could have predicted we would still be seeing these ultra-low mortgage rates. I last refinanced my mortgage in 2010, getting a 30-year fixed rate mortgage in the lower 4%s. At the time, I thought it was a fantastic deal.
But refinancing again this week took almost no effort on my part (other than showing up to sign the papers and pulling a few documents out of the files) and will knock thousands of dollars in interest costs off my mortgage – a savings of $133,943 to be exact, by my calculations.
That incredible savings is due to two things. I just lowered the rate (to about 3%) and also cut years off the mortgage by switching to a 15-year obligation.
We know there are plenty more people out there who can benefit by refinancing.
Each day, prospective clients come into the office telling us they are paying over 5%, or even 6%, on their mortgage. Unless there is a serious obstacle preventing you from refinancing (and believe me, we know there are some people out there who have issues they haven’t been able to fix), you should be taking a long, hard look at the economics of redoing your mortgage.
Here’s some of the obvious reasons to do so:
Lower your interest rate and monthly payments. The average refi candidate can lower payments by a couple of hundred dollars every month. That’s found money you can toss in your retirement fund, or pay down pricey credit card debt or car loans.
Pay off your mortgage faster. That’s what I did by switching from a 30-year mortgage with 25 years left to run to a 15-year mortgage that will pay off my home ten years earlier. Today’s low interest rates make a 15-year option much more affordable, since it brings the steeper payments down to earth.
Switch from an adjustable rate loan to a fixed rate loan. While adjustable rate loans have been cheap, at some point those low rates will adjust upwards, resulting in ballooning and potentially dangerous monthly payments for you. That makes for a great reason to swap these loans (including any floating rate home equity loans and lines of credit) for fixed rate loans that will never go up. Consider this a savvy option to reduce your interest-rate risk.
The Takeaway: You can check out what a new mortgage will cost you at various rate levels, plus potential interest savings, at Bankrate.com.