Mortgage rates stand at 2.85% this week and borrowers with stellar credit can likely get a mortgage loan as low as 2.50% these days.
Expect a ton of activity on that front, especially on the refinancing side.
Nadia Aziz, general manager of home loans at OpenDoor, citing data from Freddie Mac, says that nearly 13 million borrowers are in line to save money by refinancing their home loans.
“With historically low mortgage rates, many homebuyers and homeowners are rethinking their mortgages,” Aziz says. “While refinancing your home can be a smart financial decision, some people are surprised to find that it might not make sense for them. “
Aziz supports that sentiment and says that “it can be confusing” entering into a mortgage loan refinancing deal, especially if you’re doing so for the first time.
To help out, Aziz cites three common myths about mortgage financing that just aren’t true.
Myth: Refinancing won’t save me much money. Depending on your current mortgage, refinancing might save you a considerable amount of money—especially in interest payments. For example, reducing your loan rate by even 1/2 of a percentage point could save you thousands of dollars in the long-run.
Pro-tip: A mortgage refinancing calculator can help you determine your specific savings.
Myth: You need at least 20% in home equity to refinance. Having at least 20% home equity when you refinance to a lower rate or different term is nice, since it means you probably won’t have to pay for private mortgage insurance (PMI) as part of your refinance loan. But it’s not required—even if you have less than 20% home equity, you’ll still be eligible to refinance.
Pro-tip: Even with PMI, you could still save a considerable amount of money over the life of your loan. A cash-out refinance still requires at least 20% home equity.
Myth: Refinancing is always a good idea When deciding if you should refinance, there are many factors to consider, including your credit score, income, current mortgage balance including any potential prepayment penalties, and loan type, and also more generally your current and future financial situation and financial goals.
Typically, if you plan to stay in your home for at least a couple of years more and qualify for a rate that would lower your mortgage interest rate by at least 0.5 percentage points, then refinancing can be a good financial decision. With current rates as low as they are, it’s likely that your new rate would be lower enough to make refinancing worth your while.
Pro-tip: Reach out to a mortgage consultant to get expert advice for your specific situation.