As the coronavirus scare pushed the ten-year Treasury note to an all-time low and the Fed slashed the federal funds rate, interest rates for mortgages also fell, creating money-saving opportunities for would-be homeowners and current homeowners looking to refinance.
In early March, the 30-year fixed rate mortgage stood at 3.36% and the 15-year fixed mortgage averaged 2.8%. Those are the lowest rates ever recorded in Freddie Mac's survey, which dates back to 1971. But rates ticked up as mortgage brokers struggled to keep up with demand for refinancing and many lenders chose to keep rates higher than they typically would be based on the level of the 10-year Treasury. The spread between the 10-year Treasury yield and the 30-year fixed mortgage rate is near its largest since 2009.
If your mortgage rate is more than one percentage point above current rates, it's usually a sign that it makes sense to refinance. But you may benefit from a refi even if your new rate would be less than a full point lower. It depends on how long you plan to stay in your home and how long it would take to recoup closing costs.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Keep in mind that closing costs for refinancing will typically run between 3% and 6% of your new loan amount, so knowing when you plan to sell your home is essential. Say you have a $300,000, 30-year, fixed-rate loan at an interest rate of 4.4% that you took out in 2014, and you're making a monthly payment of $1,688 a month in principal and interest. If you refinance to a 30-year loan with an interest rate of 3.0% and closing costs of 3% and finance the closing costs, you would lower your mortgage payment to $1,303, saving you $385 per month. You could break even and begin saving after a bit more than three years. If you sold your home in 10 years, you would save a total of $17,457.
For help crunching the numbers, use The Mortgage Professor's refinance calculator (www.mtgprofessor.com) to enter the details of both your current mortgage and your new loan to see how long you'd have to stay in your home to start saving money on a refi.
If you are a candidate for a refi, consider waiting until the rush settles down. Would-be home buyers who have been kept out of the market by rising prices stand to benefit from lower rates and the lower monthly payments. But that could lead home prices to jump, because inventories remain tight, especially in the hot markets of the South and West.
-
What the Comcast Cable Spinoff Means for InvestorsComcast has announced plans to spin off select cable networks and digital assets into a separate publicly traded company. Here's what you need to know.
-
TJX Stock: Wall Street Stays Bullish After EarningsTJX stock is trading lower Wednesday despite the TJ Maxx owner's beat-and-raise quarter, but analysts aren't worried. Here's why.
-
October CPI Report Hits the Mark: What the Experts Are Saying About InflationCPI While the current pace of rising prices appears to have leveled off, the expected path of rate cuts has become less certain.
-
Fed Cuts Rates Again: What the Experts Are SayingFederal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
Market Reaction to Election Results: What the Experts Are SayingJobs Report Election uncertainty has been removed from the list of investors' worries, helping equities soar.
-
Jobs Growth Stalls Amid Hurricanes and Strikes: What the Experts Are SayingJobs Report A dismal October payrolls print supports the case for a slow and steady pace of rate cuts.
-
CPI Report Points to Gradual Pace for Rate Cuts: What the Experts Are Saying
CPI Inflation surprised to the upside last month but the disinflation trend remains on track.
-
Strong September Jobs Report Puts Soft Landing in Sight: What the Experts Are SayingJobs Report A blowout reading on nonfarm payrolls takes another jumbo-sized cut to interest rates off the table.
-
Before Buying Your First Home, Get These Three Ducks in a RowWith mortgage rates higher than we're used to, making sure you can comfortably afford to buy your first home is more important than ever.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
