Last month’s New York Times headline couldn’t have been clearer: “It’s Time to Think About Refinancing Your Mortgage,” said Neil Irwin. We may not, Irwin explained, see rates as low as 3.8% on a 30-year fixed-rate mortgage and 2.9% on a 15-year fixed-rate mortgage for long.
Just one week ago, Polyana da Costa, writing for Bankrate.com, reported in the same vein that, “Fidgety mortgage rates end up unchanged,” the result of which is a “refi mini-boom.”
As of today, mortgage interest rates have inched a hair since Irwin’s report – in particular for 15-year mortgages, with an average of over 3% reported around the Web. Nevertheless, the window of opportunity appears still to be open.
In fact, the only reason this “mini boom” hasn’t turned into a serious boom may be, as Marjo Shaffer, Vice President of RPM Mortgage in Alamo, California points out, that “Many of my clients have already refinanced, taking advantage of the low rates that have been available for a few years now.”
If you’re only just getting around to considering refinancing, however, you’ve got some attractive options before you.
The temptation may be to focus on how much you can lower your monthly payments. This amount can indeed be dramatic, especially if you’ve already lived in your home for some years. By choosing another 30-year mortgage, you’d stretch your remaining loan amount over that entire time period, which can’t help but lower your monthly payment.
Beware of this temptation, however, and run some numbers (with the help of a mortgage broker or online calculators). Otherwise, you could end up paying far more in interest over the long haul than you’d originally signed up for.
If you’re not struggling to make your current house payments, you might consider a 15-year mortgage. These often get overlooked during the initial home purchase, since most buyers have just drained their bank accounts to come up with a down payment and are in a state of budget shock. But by the time you’re thinking about a refi, you may have settled into a more predictable financial pattern. Perhaps your income has improved, too. Nabbing the extra-low interest rates that come with a 15-year mortgage might be a great way to come out ahead.
Still, the 15-year mortgage hasn’t turned into a customer favorite. Marjo says, “Most of my clients seem to want an option, not an obligation, to pay off their mortgage in a short time. They’ve got other expenses, like kids’ schooling, to think about. You can always make early payments on a 30-year mortgage, which will reduce your overall interest owed at the same time.”
There’s also the matter of how soon you plan to move. If you’ll need to pay closing costs on the refi (origination and appraisal fees), you’ll need to spend enough time in the house to see the benefits of your lower interest rate. (Online calculators can help you figure out your “break-even” point.) “For many of our clients,” says Marjo, “it makes sense to accept a slightly higher interest rate in return for no closing costs at all.”
No matter what, look at the big picture. According to Shaffer, “considerations such as retirement savings, risk tolerance, savings for an emergency, and discipline, are all part of choosing the mortgage that will work for you.” See Nolo’s article on “Refinancing Your Mortgage: When It Makes Sense” for more information.