Many homeowners could save hundreds of dollars on their mortgage payment. (iStock)
A recently released mortgage report from Black Knight showed a steady interest in home refinances thanks to record low mortgage rates. The report also showed that the average consumer could save at least $304 per month if they take advantage of today’s record-low interest rates.
More than 18.5 million homeowners could reduce their mortgage rates by at least .75%. The study reports that the number of individuals who could save money on their mortgages with a refinance increased by more than 10.4 million from last year.
You, too, could save on your monthly payments and potentially even cut the life of your loan by refinancing your mortgage. If you're looking to save money by refinancing, head to multi-lender marketplace Credible and find your potential savings today by inserting your information into their free online tools.
Still skeptical? Read on to learn more about refinancing and how to determine if it saves money.
How much can you save by refinancing your mortgage?
The study by Black Knight revealed that more than 7 million homeowners could save more than $300 per month by mortgage refinancing, and an estimated 2.5 million homeowners could save more than $500 per month.
Homeowners with a variable rate loan may also want to consider refinancing to a fixed-rate loan to ensure they lock the low-interest rates over the life of their loan. If you’re considering refinancing your mortgage, visit Credible to compare loan rates and mortgage lenders in just a few minutes.
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Determining how much you could save depends on your current loan term, mortgage rate, your credit score, and the new interest rate your mortgage lender approves. You can also figure out how much money you could save with an online mortgage calculator.
As an example, if you purchased a $400,000 home at a 4% interest rate you would be paying about $1,910 per month. If you refinance your home to a 15-year fixed-rate loan with a loan balance of $250,000 at 2.30%, your new monthly payment could be $1,668.19, a savings of $241. If you opted for a 30-year fixed-rate refinance at 2.75%, your new monthly payment could be $1,035, a savings of $874.09 per month. Just note that refinancing into another 30-year home loan resets your pay off date.
Is a mortgage refinance right for me?
Although low-interest rates may be a compelling reason for committing to a mortgage refinance, there are at least four factors you should think about first.
- Do you plan to stay in your home?
- Credit score
- Home equity
- Loan term and mortgage payments
- Current mortgage rates
1. Do you plan to stay in your home?
If you plan to stay in your home for at least five years, a home refinance may save you money. When you refinance your home loan, you’re taking out a new loan. That comes with fees from your lender as well as the new .5% adverse market refinance fee. These fees could add up to several thousand dollars. Ideally, you should recoup the refinance cost before you leave the property to maximize your savings and avoid spending money on an unnecessary refinance.
Additionally, if your refinance includes an owner-occupancy clause, you may not be allowed to sell for six months to a year. A site like Credible can be helpful when you’re ready to compare finance loans. Credible lets you see prequalified rates from multiple lenders, all within a few minutes. Visit Credible today to get started.
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2. Credit score
Before you spend time filling out applications and waiting for a home appraisal, make sure your credit score is up to snuff. Aim for a score over 700 to land the best rates possible. You can increase your credit score by reducing consumer debt and paying your bills on time.
When you’re ready to refinance, head over to Credible. You can get several prequalified rates without affecting your credit score.
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3. Home equity
Most lenders want homeowners to have at least 20% equity in their property before they refinance. If you have a high credit score, you may be able to work around this requirement. However, your lender may charge you a higher interest rate. As a bonus, if you’ve built up 20% equity in your home before you refinance, you may also be able to eliminate any private mortgage insurance fees. As you research your refinance, visit Credible to view loan options across multiple lenders with fewer forms to fill out.
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4. Loan term and mortgage payments
If you've already completed much of your loan term and have less than five years left on your mortgage payments, you may find it more beneficial just to stay the course and pay the loan off on your current timeline. While you could lower your monthly payments, refinancing into a longer loan could cost you more money over time, and you would extend the time you have left until you own your home.
5. Current mortgage rates
At publication, the average interest rate on a fixed-rate 30- year home loan was 2.71% and 2.26% on a 15-year fixed-rate home loan, according to Freddie Mac. If mortgage rates stay below 3%, then now is likely a good time to refinance your mortgage.
Like anything, if you want to get the best price, you’ll need to look at multiple lenders to find the best interest rates for your situation. Credible can show you interest rates on a refinance from various lenders. You can also use a comparison tool to find out whether you qualify for a pre-approval letter without impacting your credit score.
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Bottom line
You could still save money by refinancing your mortgage now — but before you make any major life decisions, examine your personal situation. Take time to get educated on your choices for the best results.
Visit Credible to get in touch with experienced loan officers and get your mortgage questions answered.