As of January 19th, the 30-year mortgage rate averaged 4.09% from the prior week’s 4.12%. The results of Freddie Mac’s latest weekly survey on mortgage rates mark the second week they’ve dipped lower. And when rates are low, the question of refinancing is in order. Will rates remain low to merit a refinance?
Are Rates Low Enough to Refinance?
The week ending January 19, 2017, revealed these trends in mortgage rates:
- The 30-year FRM edged lower to 4.09%, compared to 4.12% for the week ending January 12, 2017. The FRM rates averaged 3.81% during the same period last year.
- The 15-year FRM averaged 3.34%, down from the prior week’s 3.37% and up from last year’s 3.10%.
- The 5/1 year adjustable-rate mortgage had an average rate of 3.21%, down from 3.23% of the prior week and up from 2.91% in the same period last year.
Based on the year-over-year change, you’d see that current rates are relatively higher. But if you go further back to say 30 years, you’d be amazed to see 30-year FRM rates as high as 18.6%, something homebuyers then would kill for (today’s rates), RedFin noted in its report.
Going back to the current state of affairs, it remains to be seen if it’s wishful thinking to see rates go as low as during the Brexit era or continue to rise as projected.
- If you are in the market for a refinance to lower your rate and believe a slight decrease result in substantial savings even with closing costs included, then you might lock in today’s rates.
- Also consider how long you plan to stay in the home. If you plan to move out in five years’ time, you might go for the 5/1 year ARM which fetches the lowest rate among the surveyed mortgage rates.
Refinance to Lower Rates, Aside
If you find the present rates too temporary and uncertain, there are other reasons to refinance. Find out if any of these applies to you.
- Cut back the loan term. The main perk of shortening your loan term is saving on the interest portion of the loan. Your monthly payment will increase when you switch from a 30-year to 15-year FRM, but the 15-year FRM and even the 5/1 year ARM come with lower rates. With a shortened or shorter loan, you build equity and pay off your mortgage faster.
- Drop the private mortgage insurance. If your home has an adequate level of equity, you can refinance to remove your PMI. Do note that lenders can automatically terminate your PMI if you reach 80% LTV so consider which is beneficial: to wait for the automatic termination or refinance now and pay closing costs. If you own an FHA loan, the only way to remove its mortgage insurance premiums is refinancing to a conventional loan.
- Take cash out of your home equity. You can borrow against your equity to consolidate your debt, e.g. personal loans and credit cards. Say you want to borrow $20,000 and your outstanding loan balance is $100,000, you can refinance to a $120,000 loan and pocket the $20,000 in cash.
Stay tuned to this blog for updates that could affect your refinance and homeownership-related decisions this year.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.