Mortgage rates are at the lowest they’ve been since November 2016, which means that for millions of homeowners, refinancing could lead to big savings.
If you’re considering refinancing your home, experts recommend obtaining at least 3 quotes before making a decision.
LendingTree is a good place to start the process. As one of the biggest names in the world of online refinance lending, LendingTree provides borrowers access to a wide variety of lenders with just a single application form.
For refinancing, you should be able to find lenders who can meet a wide variety of credit scores as well as debt-to-income ratios, and repayment terms that work for you.
If you’re not sure if refinancing is right for you, here are three questions that will help you figure out if it will save you money, or end up being a costly mistake.
1. How much have interest rates dropped, and how much do you owe?
This is key.
If the interest rate on your new mortgage isn’t at least 0.75% lower than your current rate, refinancing is probably not worth your time.
Of course, the rate drop isn’t the only factor to consider. A lot depends on how much you owe on your mortgage. A 0.75% drop in your interest rate means a lot more when you have a $1 million mortgage than when you have a $100k balance.
According to Black Knight’s latest Mortgage Monitor report, 8.2 million homeowners are now likely to qualify for refinancing that reduces their interest rate by at least 0.75%.
And you don’t have to be a long-time homeowner to consider refinancing.
More than 35% of all borrowers who took out their first mortgage in 2018 could now save at least 0.75% by refinancing.
Quicken Loans has a handy refinance calculator to help you decide if refinancing makes sense. The mortgage lender is also one of the biggest in the nation, with a completely online application process where you can track the status of your mortgage application and manage your mortgage online once it’s completed.
2. How much are the closing costs?
In order to secure a lower interest rate, you have to pay closing costs again, which can include bank fees, appraisal fees and attorney fees, among other things.
The fees associated with refinancing typically run between 1% and 2% of your total mortgage balance.
"Ask your lender to run the numbers so you know exactly when the savings outweigh the costs and if it fits in with how long you plan to be in that home" says Kristin Baker, wealth advisor.
Once you’ve done the math to figure out how much it would cost to refinance, you need to figure out how long it would take you to earn that money back. Experts say it’s best to recoup the closing costs in five years or less.
3. Does refinancing fit in with my other financial goals?
While refinancing could be a way to save money in the long-term, it’s not worth it if the upfront costs put you in a financial hole. Be sure to plan correctly and ask yourself if you have enough savings in the bank to cover things like a job loss, unexpected home repair or next year’s vacation.
Refinancing your mortgage can improve your financial situation and save you money in the long term, but it’s important you are refinancing at the right time, for the right reasons, and at the right rate.
If you're ready to compare lenders and find out if refinancing is the right financial move for you, head over to LendingTree today.