Rates Go Down Again - Golden Opportunity?

Posted by Chris on October 10, 2014

This is the third straight week that rates have declined, causing an uptick in both purchase applications and refinances. A 30-year fixed rate mortgage is at 4.07% and a 15-year fixed rate mortgage is at 3.26%. We've seen our 30-year rates get to 3.99% and our 15-year rates drop to 3.147%. If you have good credit and you're thinking about refinancing, this is great news.

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But it's common for homeowners to see low rates and not take action. Recent research shows that as many as 20 percent of homeowners who would greatly benefit from refinancing have not refinanced. Despite mortgage rates at historic lows, homeowners still failed to act. This mistake has cost individual homeowners tens of thousands of dollars.

Is this a mortgage refinance opportunity?

When rates started to move down a couple weeks ago we released an article about the Refi Red Zone. If you completed your last refinance prior to 2009 when interest rates on a 3o-year mortgage were around 5 percent, then now is a golden opportunity.

Consider a homeowner who refinanced a $300,000, 30-year mortgage at 5.04% in 2009 (the average rate in 2009). Their current monthly mortgage payment would be approximately $1,617.

What would happen if they refinanced today at an interest rate of 3.99 percent? Our fictional homeowner's principal balance would be around $271,906 if they've been able to make all their payments on time.

Let's assume this homeowner is savvy and refinanced to a 25-year mortgage because they're 5 years in on the 30-year mortgage. Running some quick numbers shows that they would actually lower their payment to $1,433 a month even though they're doing a 25-year loan. That's a savings of $184 a month and $2,208 a year! Assuming their costs to refinance were $2,700, approximately one percent of the loan value, they would break even in around 14 to 15 months ($2700/$184 = 14.67).

That's a big financial win! Not only would they save on the monthly payment, they would also save a significant amount of money on interest over the life of the loan.

Is now the time to refinance?

If you've been kicking yourself for not refinancing your mortgage when rates hit rock bottom, here's your chance to redeem yourself. Use our simple refinance calculator to see if refinancing is right for you. If you have good credit and have a loan-to-value ratio of 80% or less, you might want to go ahead and get a custom rate quote today.

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Topics: Refinancing

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