Recently, you may have noticed increased chatter about refinancing your mortgage or buying a new home. But what is all the hype about, and why now?
As the COVID-19 pandemic continues and variants unfold, both current homeowners and prospective buyers are benefiting from some of the lowest mortgage rates in our country’s history. From lower monthly payments to more buying power, record-low mortgage rates translate to huge savings for homeowners.
However, as signs the U.S. economy is beginning to rebound, mortgage rates will eventually start to tick back up. If you haven’t refinanced your mortgage yet or are thinking about purchasing a home, here is why now is the ideal time to lock in a fixed-rate mortgage.
Types of Mortgage Loans
There are various types of mortgages available for borrowers, with the most popular being conventional fixed-rate mortgages and adjustable-rate mortgages (ARM).
- Adjustable-Rate Mortgages: With an ARM, you will typically receive very low introductory rates. While this period can vary by lender, usually, you enjoy the introductory period for five to seven years. After that, your mortgage rate can and most likely will adjust. The adjustment can catch many borrowers off guard as their rate and monthly payments suddenly increase.
- Fixed-Rate Mortgages: With a fixed-rate mortgage, the rate you receive when closing on your mortgage will remain the same throughout the life of your loan. Even if rates dramatically increase (or decrease) years from now, your fixed rate will stay unchanged along with the principal and interest portion of your monthly payment.
Why the Hype About Fixed-Rate Mortgages?
The reason homeowners and buyers are flocking to fixed-rate mortgages is that rates are at record lows. If you lock in a record-low interest rate now, that rate will remain the same for the life of your loan.
Considering how mortgage loans are long-term (up to 30 years), borrowers today will enjoy the benefits of these lower rates for decades still to come. And with rates hovering around 3%, it’s unlikely rates will drop much further. Instead, they will only increase as the economy rebounds or inflation picks up.
How to Benefit by Refinancing to a Fixed-Rate Mortgage
When it comes to refinancing your mortgage with today’s record-low rates, there are many ways to benefit. Often people look simply at their monthly payment, but what you do with those savings is just as important.
- Increased cash flow. When you refinance with lower interest rates, your monthly payment will likely drop. Spend some time and plan how you will handle these extra funds. You can pay off additional debt, boost your retirement contributions, add more to your emergency fund, or just enjoy extra spending cash.
- Pay off your home quicker. With lower rates, you may be able to shorten your mortgage term while keeping your monthly payment relatively the same. By paying off your home sooner than originally planned, you could potentially save thousands of dollars in interest.
- Switch mortgage type. If you currently have an adjustable-rate mortgage, it would be wise to refinance to a fixed-rate loan before your adjustment takes place. Rates will likely only increase from here, so it makes financial sense to lock in the lowest rates possible now.
- Purchase more house. If you’re a homebuyer, lower interest rates mean you can buy more house for your money. Lower rates allow you to buy that larger house you’ve been eyeing for your growing family instead of spending more on monthly interest payments.
Takeaway
As our economy begins to rebound, we may never see mortgage rates this low again – perhaps not for years, decades, or possibly in our lifetimes. That is why people are refinancing in droves, and home-buying is skyrocketing across the country.
Take a moment and review your current mortgage. If your rate is 0.75% to 1% higher than today’s rates, it is worth exploring your refinancing options. Even a 1% drop in your current rate could mean saving tens of thousands of dollars in interest over the life of your loan.
We’re Here to Help!
Whether you’re looking to buy a home or are considering refinancing your current home, now is a perfect time. There are many options when it comes to refinancing, specifically if you want to lower your payment or pay off your home quicker.
Our home loan team is ready to answer all your questions and help you decide which option is best for you. Please stop by any of our convenient branch locations or call 800-782-4899 to get started today.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.