We kicked off the start of October with rates moving lower. This could be a good thing for homeowners or people thinking about buying a home. We're still not at the all time lows of 2012 and 2013 but rates in 2014 are still historically low.
When rates move lower the question in every savvy homeowners mind is whether or not they should consider refinancing. Should they do anything? Or, just sit back and ignore the news?
As I've covered in the past, you have to do the math to figure out what's right for you. Or, if you don't like math, use this free refinance calculator. But chances are that you could save a lot of money if you reduce your interest rate just a little bit on a longer term loan. If you got into a home loan prior to 2011 and haven't already refinanced, chances are good you could save money by refinancing your home loan.
Does this mean you're guaranteed to save money? No. Everyone's mortgage situation is different. But it does mean that you should at least take five minutes to run some numbers and see if you can save thousands of dollars. Wouldn't that be a big financial win? Yes, I think so!
The Mortgage Refi Red Zone
Here's what I like to call the refi red zone. Meaning, if you got a home loan anytime during the 90's and before 2011 and haven't refinanced, then it's time to consider it.
As recent as 2009 mortgage rates were 5 percent. In 2008 mortgage rates were above 6 percent. Today rates on a 30 year mortgage are at 4.125%. If you're in the refi red zone it's time to get moving.
A few things you need to consider before you start running numbers and getting excited about all the money you could be saving by refinancing your current home loan.
- Are you planning to sell the home in the near future (less than 3 years from now)? If so, it might not make sense to refinance because you might not have enough time to break even on the costs of refinancing.
- How's your credit? If you're like a lot of people who have dinged up credit from the financial turbulence the last few years then it might not be an ideal time to refinance. You might not be able to take advantage of the low rates. However, if your credit is good then give it a shot. By good, I mean high six hundreds to low seven hundreds.
- How much longer do you have to pay on your current mortgage? If you only have 5 years left on your current mortgage you're probably going to have a hard time saving any money by refinancing. Again, it comes down to doing some math and knowing what your break even point is.
So given that interest rates have moved lower today should you do anything? It depends. Are you in the refi red zone? If so, it might be time to dust off the calculator. Or, use this one.