Mortgage rates have reached an almost 50-year year low with the 30-year falling to 2.98%, according to the latest numbers provided by Freddie Mac, a government agency that backs millions of mortgages.
The historic rate offers plenty of opportunities for homeowners to lock in a better rate, reduce their interest payments over the life of their mortgage, and potentially lower their monthly home loan payments during a time of deep uncertainty.
“For many homeowners who may have mortgages with rates above 4%, this presents a good opportunity to refinance,” said George Raitu, senior economist at Reatlor.com.
Here’s what to consider.
‘Homebuyers should carefully consider several factors’
If you want to refinance, assess your personal situation first.
“Homebuyers should carefully consider several factors when making their decisions,” Raitu said, “including how long they expect to stay in their homes, what is the remaining term on their current mortgages as well as closing costs and fees.”
Those who have a higher rate on their mortgage and are earlier in the repayment period could benefit the most from a lower rate, “as long as they plan to stay in their home for several more years,” Raitu said.
For instance, if you have a $100,000, 30-year fixed mortgage at a 5% rate, you’re paying $537 per month. If you refinance to 3.75%, your monthly payment is $463.
If you have 20 years left on the mortgage, that’s a savings of $17,760 if you refinance.
Those with higher credit scores typically qualify for lower rates, so it may work in your favor to improve your credit score, if it’s low, before refinancing.
“If your credit score has room for improvement, consider spending time paying down debt like loans and credit cards before you refinance,” said Sean Messier, associate editor at Credit Card Insider, a personal finance website. “Even a 20-point increase in credit score could lead to an incremental reduction in interest, which could, in turn, translate to thousands of dollars saved.”
If you do qualify, should you refinance now or wait?
If you’re worried about refinancing now because rates could fall further, don’t let that paralyze you, experts said.
“It’s difficult to say if mortgage rates will fall further. We’ve already hit record lows three times in the past four weeks,” said Nadia Aziz, general manager of home loans at Opendoor, a real estate company. “I suspect they will stay fairly steady for now while we await more clarity on the impact of the recent uptick in COVID-19 cases and the consequences that will have on the economy.”
The Mortgage Bankers Association, a trade organization, expects rates to remain around 3.4% for at least the rest of the year, which is considerably higher than the record-low 2.98% from this week.
Instead of worrying about whether rates could drop further, you should seize the current opportunity to refinance.
“The simple answer is, we don’t know what ‘later’ actually is ever,” said Landon Hale, owner of Post Oak Realty. “All of this to say, in real estate, you want to always be operating on ‘right now’ data."
Read more information and tips in our Mortgage section