While fixed mortgage interest rates have been holding relatively steady for the past year --averaging 6.38% APR (slightly down .38% from a year ago)- some homeowners with higher adjustable rates are finding that now is a good time to refinance their mortgages. According to the Mortgage Bankers Association, nearly $1.1 to $1.5 trillion in Adjustable Rate Mortgages will face rate increases this year, with borrowers expected to refinance as much as $700 billion of these adjustable mortgages.
The costs savings to refinance a mortgage loan can be a considerable amount. For example, a monthly payment (excluding taxes and insurance) on a $250,000 mortgage loan at 7.50% would be about $1,748. Reduce this rate to 6.5% and the monthly payment becomes $1,580, or a savings of $168. However, as attractive as these savings might be, refinancing may not be the best option for everyone. Some homeowners with adjustable rate mortgages who would like to refinance into a new loan with lower interest rates are finding it harder to qualify.
With lenders tightening their lending standards, and the possibility of incurring pre-payment penalty fees for getting out of a mortgage early, not all borrowers can afford the thousands of dollars it would cost them to refinance their existing loans. These challenges are especially greatest for sub-prime borrowers, whose credit scores are below average to begin with and may have even declined further since taking out their initial loan, leaving them with little or no equity to negotiate with on a refinance.
As borrowers get caught up in an ever changing market, where home values are softening and inventory levels increasing, the Federal Reserve's decision to hold interest rates steady has made fixed mortgage rates an attractive financing option for many borrowers.
Whether or not to refinance depends on each borrower's unique set of circumstances and if the potential mortgage savings is enough to offset any existing refinancing penalties and fees. In which case, refinancing to a lower fixed rate may make the most sense.
Source: Informa Research Services
Credit Karma Mortgage, Inc. NMLS ID# 1588622 | Licenses | NMLS Consumer Access
Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.
Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.