My mortgage is small and my interest rate is below 4% — would a refinance be worth it?

I want a loan — how long will it take to get my money?
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The Trusted Money Coach explores the advantages and disadvantages of small mortgage refinancing. (Reasonable)

Dear Trusted Money Coach,

I currently have a 30 year loan with an interest rate of 3.375%. I am nine years old and have excellent credit. I owe about $54,000. Is it worth refinancing? – David

Hi David, and thanks for your question. Many homeowners are in the same situation right now, wondering if they should refinance their mortgages.

To answer your question, we need to look at your current mortgage refinancing rates, how they might change in 2022 and your current rate.

Refinancing rates as of January 2022

For much of 2021, mortgage purchase and refinancing rates were at historic lows. In March 2021, a year after the pandemic first appeared in the United States, 30-year flat-rate mortgage refinancings averaged 3.098%, according to data compiled by Credible. But that was the average, and for several days that month, rates dropped to less than 3%!

In September 2021, prices began to rise. By December, the average 30-year refinancing rate had risen to 3.132%, which is still an impressive rate.

Before the pandemic, mortgage purchase rates were much higher than they are today. Data from Freddie Mac shows that in March 2019, the average 30-year fixed-rate mortgage was 4.27%, with 0.5 points, bringing the effective interest rate close to 5%.

Possible future of rates

Mortgage experts expect rates to rise in 2022, although expectations differ on how significant the increases will be. Some noteworthy forecasts of 30-year flat rates include:

  • 4% by the end of 2022 – Mortgage Bankers Association
  • Average 3.5% per year 2022 – Nadia Evangelo, Chief Economist and Director of Forecasting at the National Association of Realtors®
  • 3.4% in the fourth quarter of 2022 – Fannie Mae
  • Average 3.5% per year 2022 – Freddy Mac

Is it worth it to refinance your mortgage?

Mortgage interest rate is just one factor in determining Whether refinancing will benefit borrower. Also, consider the closing costs of refinancing by review Good faith estimates from potential lenders. And know how long you plan to stay in your home – the longer you hold a refinanced mortgage, the more it will pay off.

If you pulled your mortgage down in 2012 at 3.375%, it was a pretty good rate back then. It is not much higher than the prevailing rate you can get today for a refinancing.

The general rule is to consider refinancing when you can lower the interest rate by at least 0.75%. Therefore, a 30-year refinancing does not make sense to you because the difference between your current mortgage rate and the average 30-year refinancing rate is much less.

However, if you can handle the higher monthly mortgage payments, Refinance in a shorter repayment period It will provide interest over the life of the new loan. In December 2021, the average 15-year refinancing rate was 2.375%, and the average 10-year refinancing rate was 2.330%. Refinancing in either of these two terms in December would have lowered your rate by at least 1%, saving money.

bottom line

If you are able to get approved to refinance a mortgage at least 0.75% below the current rate, and you can afford the closing costs, it can be beneficial.

But because the $54,000 mortgage balance is relatively low, it can be difficult to find a lender willing to work with you. That’s because refinancing a lower mortgage balance isn’t as profitable for the lender as the higher amount.

If your goal is to reduce your total interest or Pay your home soonerConsider paying off your mortgage before the due date. For example, you can pay more into your primary balance each month or send an additional payment each year.

Reducing the repayment time can significantly reduce interest, which can save thousands of dollars over the life of the loan. Just make sure the lender knows how to apply additional payments to your principal. Otherwise, they may keep it in escrow, which won’t help you save money.

Ready to learn more? Check out these articles…

Need Credible® Advice for a Money Related Question? Email your trusted money coaches at Money coach can answer your question in an upcoming column.

This article is intended for general informational and entertainment purposes. Use of this website does not create a professional relationship with the client. Any information found or derived from this website should not be a substitute for and cannot be relied upon as legal, tax, real estate, financial, risk management or other professional advice. If you require any such advice, please consult a licensed professional or a knowledgeable expert before taking any action.


About the author: Laura Adams is a personal finance and small business expert, award-winning author, and host money girl, a top-rated weekly blog and podcast. She is frequently quoted in the national media, and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her speaking, spokesperson and advocacy work. She has an MBA from the University of Florida and lives in Vero Beach, Florida. follow her LauraDAdams.comAnd InstagramAnd Facebook social networking siteAnd Twitter, And LinkedIn.

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