Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
15 Year Refinance Rates
On November 25, 2020, according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the benchmark 15-year fixed mortgage rate is 2.440% with an APR of 2.750%.
The average 15-year jumbo mortgage rate is 2.410% with an APR of 2.470%. If you’re looking to refinance, the average 15 year refinance rate is 2.510% with an APR of 2.720%.
Why Do People Refinance?
The number one reason why people refinance is to lower their payments. Though there are many variables that go into it it might be possible to get the lowest refinance rate.
The number two is- when people have a high-interest auto loan or other loans and want to pay it off, and if they own a home and want to refinance, they have equity in their home to pay off some of these high-interest loans and be in a better situation again the refi rates come to their rescue.
The number three when people get their 1st loan and sometimes even their second it is just a normal loan of 30 years and when they make more money and or want to pay off that loan faster so they go from a 30 year to 15-year mortgage by taking advantage of lowest refinance rates available during these times.
These are the top 3 reasons why people are wanting to refinance.
For the 1st time in history, we see the mortgage rates fall below 3 percent so if you have a mortgage then refinancing your home is currently a great opportunity to refinance because interest rates are so low when done correctly, you can take many years off your mortgage term while saving hundreds of dollars every month.
Using Refinancing to Your Advantage
Let us look at how you can use refinancing to your advantage so you could save in paying your mortgage.
US economy is in recession and so the Federal Reserve have cut the interest rates to nearly zero percent as a way to make money cheaper to borrow so that people spend more and so this stimulates the economy.
Though it is not good news for the banks because they make smaller profits this presents an opportunity for you with mortgage interest rates lower than ever before which means borrowing money is extremely cheap and so you can save hundreds of dollars every month on your mortgage payments than if you took out this exact loan a year ago by simply taking advantage of the lowest refinance rate.
How Does Refinancing Work?
When you refinance your mortgage all it means is that you are moving lenders and are essentially taking out a new loan.
Your new mortgage lender will pay off your existing mortgage but the opportunity lies in the fact that your new mortgage will have a lower interest rate because interest rates are so low and so your new monthly mortgage payments will be lower than before.
Now it is in your bank’s best interest to keep you in debt as long as possible because in this way they make the most money from you, and you want the exact opposite you want to be out of debt as fast as possible.
And so another way you can view refinancing is that it allows you to pay off your mortgage much more quickly or you can refinance in a way that keeps the same mortgage term, but with a lower monthly payment and so you save money every month.
It really depends on what your goals are, do you want to keep paying the same monthly payments but become mortgage-free much sooner? Or to keep the same mortgage term but pay less on your monthly payments.
This means you can put some money aside every month, whether you want to use that for your emergency fund or you want to use that for your investments.
Let us look at some examples Let us say you have a 30-year mortgage and $ 200,000 loan at five percent interest, your monthly payment will be around $1073, and let us say you now refinance and your new mortgage is for the same $ 200,000, but now the interest rate is 2.5 percent, and let us say you continue to pay the $ 1073 monthly by reducing the interest rate from 5% down to 2.5%, your mortgage terms go from 30 years to 19.9 years so you can pay off your mortgage 10 years sooner.
So if you buy a house when you are 30 and your mortgage would have been paid off when you are 60 now your mortgage is being paid off by the time you are 40.
Essentially what is happening is you are lowering your monthly payments, but because you are still contributing the same amount of money every month some of this money is now going directly towards the principal amount.
And this is helping you pay off your mortgage much faster instead of keeping the same monthly payment of $1000.
If you now contribute an extra $ 300 every month, you can now pay off your mortgage in 15 years that’s another five years knocked off.
We can also compare the total interest paid so in the example at 5 % interest rate on a $ 200,000, 30-year mortgage the total amount paid is $386,000 including interest so that is $ 186,000 of interest.
But at the 2.5% interest rate you now pay a total of $284,000, so that equates to $84,000 of interest. Which means an overall of $102,000 saving by simply refinancing to a lower interest rate mortgage.
So this is the 1st way you can refinance and this allows you to become mortgage-free much sooner by still making the same monthly payments.
Now let us look at it from a different perspective, if you again have a 30-year mortgage of $200,000, at a 4.5% interest rate and again you have the opportunity to refinance to a 2.5% interest rate on the same $200,000 for 30 years, then your monthly payment now will be $790 so you have saved $206.90 every single month.
Over the 30 years that is $74,484 saving, that would have otherwise gone to the bank. This is the power of refinancing.
The 1st example allows you to slash your mortgage term from 30 years straight down to 15-20 years by keeping a similar or the exact same monthly payment.
The 2nd way allows you to save money every single month which you can put towards your emergency fund or you can put it into an investment portfolio, which we have seen can build up substantially over the course of 30 years.
Or you can do a combination of an emergency fund and put some money aside for your investments. The refinance option you pick really depends on your goals and investment opportunities.
If your goal is to pay off your mortgage as quickly as possible then you will want to refinance but keep the same monthly payment and your mortgage will finish at a much earlier date.
However, if you feel that you are just about making your mortgage monthly payments then you will want to refinance to a lower monthly payment and use these monthly savings to build up your emergency fund.
In the current times, we have seen just how crucial it is to have an emergency fund that can last you for 3-6 months.
Once your emergency fund is built up then you can use the monthly savings to build up your investment portfolio.
Conclusion
When you refinance you will want to make sure you are getting the lowest interest rate possible and so you will want to shop around.
Something to bear in mind with the interest rates being so low is, some lenders are now charging higher arrangement fees as a way to still make some of their profits and so when you are looking to refinance your home don’t just consider these higher arrangement fees.
Overall refinancing is a great way to either reduce your mortgage term or put savings aside for an emergency fund or for you to invest.
The key is that you want to do it correctly in a way that aligns with your goals, and a way for you to put some money in your pocket, not your bank’s pocket.
So this is how you can take off more than half of your mortgage term and save a substantial amount of money every month.
