It’s never a bad idea to consider how you can save money—but especially right now with the COVID-19 crisis affecting many families’ financial situations. Although scaling back on impulse purchases and skipping lattes can help save some money, one of the most impactful ways to change your budget’s bottom line may be considering a home refinance. You could be a good candidate for refinancing your home if:
- You still have steady income
- Your credit score has improved since initially purchasing your home
- You plan to stay in your home for an extended period
With mortgage rates running extremely low through the winter and spring, refinancing your home should be an attractive option to anyone whose existing mortgage interest rate exceeds 4%. Even if you are able to lock into a new mortgage with a 3.5% interest rate, that could still mean saving a substantial amount of money on a monthly basis.
For example, a 4% interest rate on $300,000 for a conventional 30-year mortgage breaks down to $1,432 per month. But if you drop that interest rate down to 3.5%, the new monthly mortgage payment would be $1,374—or a savings of $696 per year.
If you plan to stay in your house for an extended period of time, you can see how this is a pretty good deal. However, there is one notable catch: In order to refinance, you will have to pay closing costs with a lender yet again. According to real estate data firm ClosingCorp, the national average for refinance closing costs is $5,779 including taxes.
Some lenders have recently begun promoting no-closing costs refinances, but you still need to read the fine print: Generally, there will be a higher mortgage rate to compensate for the supposed “savings” or the fees will be tacked onto the final price. (Following the wisdom that if something seems too good to be true it probably is.)
If you still aren’t sure whether refinancing is right for you, the best next step is to inquire with a small sampling of lenders to learn more about their specific fees.