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Rates change daily. Bye today’s mortgage interest rates slightly above record lows in January 2021, in general they have always been well below historical averages. For home buyers and homeowners looking to refinance, this means there is still time to take advantage of these historic benefits. low mortgage rates…
About the latest mortgage rates
Average mortgage rate last week is based on mortgage rate information provided by national lenders Bankrate.com, which, like NextAdvisor, is owned by Red Ventures.
But there are many other factors besides the rates that need to be considered before acting. It is common knowledge a tough market for buyers right now. Housing prices have risen significantly over the past year, which means that you may have to take out a larger loan amount with the same advance payment… Even at a lower interest rate, a larger loan can eliminate any potential savings that you might otherwise see.
On the other hand, current homeowners can take advantage of these low refinancing rates. Refinancing can bring several financial benefits, although there are several things to consider when deciding if now is the right time to refinance.
Refinancing Benefits: An Example
Here’s an example showing how refinancing can lead to a lower monthly payment and lower interest paid over the life of the loan:
- Home purchase cost: $ 500,000.
- Down payment 10%: $ 50,000
- 30 year mortgage
- 4.25% interest rate on USD 450,000 loan (after down payment)
If you repay the loan over five years, you will have a loan balance of approximately $ 408,000, according to NextAdvisor. mortgage calculator…
Taking a new Refinancing loan for 30 years at 3.125% you will reduce your monthly payment by $ 466 and save approximately $ 32,919 in interest.
|Loan balance||Interest level||Monthly principal and interest||Total remaining percentage|
|Loan balance after 5 years||USD 408,000||4.25%||USD 2,213||USD 254,298|
|Refinancing loan amount||USD 408,000||3.125%||USD 1,747||USD 221,379|
|Difference||–||1.125%||USD 466||USD 32,919|
Keep in mind that in this scenario, you will extend the time that you have your mortgage payments by an additional five years. This may still make sense in terms of savings on interest, but if you have been paying off your mortgage for more than 5 years, the best option might be refinancing for a shorter period mortgage. This could be due to a higher monthly payment, but the savings on interest could be even greater.
How to decide if refinancing makes sense for you
Refinancing a mortgage can be smart money transfer, depending on your financial goals. First, think about what is most important to you in the short and long term. For example, do you want to lower your interest rate to minimize the total amount of interest paid over the life of your loan? Or maybe you are interested in lowering your monthly payments so you can save and invest sooner?
Regardless of where interest rates are now, it is important to take the time to consider your personal situation so that whatever you do is consistent with your goals and circumstances. Here are some scenarios to consider.
How refinancing can improve your credit
If you choose to use your monthly savings to pay off debt, you can improve your credit as well. Part of your credit rating depends on the amount of your debt. A smaller amount of debt in relation to the total available credit usually results in a higher credit rating. WITH higher credit rating, you will receive better interest rates on other loans, such as a mortgage or car loan.
How refinancing can help your retirement plans
Refinancing your home to lower your mortgage payment means you will get extra money every month to set aside for an emergency fund, pay off a debt at high interest rates, or invest retired… By saving and investing early, you can take advantage of compound interest.
For example, if you invested $ 200 a month between the ages of 25 and 65 with a 7% return, your investment would be roughly $ 500,000, according to NextAdvisor. savings calculator… However, if you wait 35 years to invest the same amount, by the time you reach 65, you will have received less than $ 240,000.