How do I know it's the right time to refinance?

Key insights:

• As rates continue to drop, more and more borrowers will refinance in 2021.
• Homeowners who purchased as recently as last year may benefit from refinancing to today’s rates.
• Everyone’s finances and loan terms are different, but there are simple charts that can help you determine if refinancing could be a smart move.
   

Why are homeowners refinancing in 2021?

Feel like everyone is talking about refinancing their mortgage? You’re not imagining it — as mortgage interest rates have continued to dip lower and lower, many homeowners are finding that they can save money by refinancing their mortgage to lower their interest rate.

In fact, a homebuyer with a FICO score of 750 who borrowed $300,000 at an interest rate with a 30 year fixed rate mortgage of 3.625% (APR 3.685) in 2019 may find that they could save $143/month and just over $1,716 per year by refinancing at today’s current rates.

**Rates subject to change without notice.

Sounds pretty great, right? We think so, too. Let’s dive deeper into the numbers to help you assess if refinancing is right for you.

How much lower are today’s rates?

Rates have been quite low over the last few years, so many recent buyers may wonder if refinancing will really help them. And while this is a better question for your mortgage consultant, who can evaluate your exact loan terms and finances, we can offer a bit of data to help guide you. Edina Realty Mortgage is an affiliate of Edina Realty.

This is what you should know: Due in large part to the economic fallout caused by COVID-19, already-low interest rates have dropped to their lowest levels since at least 1971, when Freddie Mac began tracking them.

Here’s a quick reference to the average interest rates for 30-year fixed rate mortgages over the last few years:

• December 2018: 4.64%
• December 2019: 3.72%
• December 2020: 2.68%

In 2021, rates are expected to hold at around 3%. That means that even if you got the lowest rate when you bought in 2019, refinancing to a currently lower rate may save you money over time.

What would my monthly payment be if I refinanced?

Wondering what your monthly payments could look like? Check below to find a mortgage loan amount comparable to yours, then compare how different interest rates affect what you owe in monthly principal and interest.

_{Note that grey cells represent the average interest rate for 2019; cells in gold represent near the 2021 levels, thus far, of 3%. The below calculations are based on a 30-year, fixed-rate conforming loan with a 20% down payment.}

What are my refinancing options?

Everyone has the same primary motivation when refinancing: to pay less in interest. But keep in mind that there are a few different ways to refinance, depending on your current financial situation. Here are some scenarios for 30-year conventional loans.

Pay it off at the same pace. You don’t have to start fresh with another 30-year mortgage. If you’ve been in your home seven years, for example, you can request a 23-year loan. In the end, you’ll still pay off your loan in 30 total years. With a lower interest rate on your 23-year mortgage, you can either pay less each month or keep your payment the same to get ahead of your payment schedule.

Pay it off faster. When refinancing, you can also switch to a 15 or 20-year loan term. This will typically increase the amount due on the principal each month, but you’ll pay much less in interest over time.

If your primary goal is to lower your monthly payment, you can also restart your 30-year term. You may benefit from a lower monthly payment and lower interest rates, too. Over time, you can use the savings to help fund retirement or school tuition, or you can overpay your mortgage each month to get ahead of your payoff schedule.

How do I know if it’s the right time to refinance?

Your finances are as unique as your fingerprints, so the best way to know if you should refinance is to speak with a mortgage consultant about your current loan and rate, current and long-term financial goals, how long you plan to remain in your home and the best path forward for you.

Keep in mind, though, that even homeowners who purchased as recently as last year could benefit from refinancing due to today’s low rates. They may not last forever so if you have a higher rate than what is offered today, be sure to contact Edina Realty Mortgage to discuss refinancing.