If You Own a House and Aren’t Refinancing, Do It Now

by Jason Unger

Refinance your house to save money

It’s a great time to be in the market for a house or to be a homeowner.

It’s not because the housing market is heating up or because prices are rising (two things I think aren’t and shouldn’t be related). No, it’s because the cost to get a mortgage and pay a monthly payment is lower than it ever has been – and just continues to get lower.

We recently refinanced our home, going from a 4.875% interest rate to a 3.625%, 30-year fixed. In dollar terms, it dropped our monthly payment about $300, and  also allowed us to drop the extra monthly payment of PMI. 

We finally settled on the 3.625% interest rate after locking in at two higher rates, and then breaking the rate locks because the rate continued to fall. It cost $500 each time to break the rate lock, but that money will be recouped in just a couple of years at the lower rate.

Looking today, our credit union – where we refinanced – is offering even lower rates, down to 3.375% with 1 point or 3.5% with no points on a 30-year fixed. And rates for 15-year loans are even cheaper – as low as 2.75%.

It’s almost unbelievable how low rates have gotten, and why you need to be refinancing if you haven’t already. If for some reason you’re on an adjustable rate mortgage, go to a fixed – now. You may even be able to avoid paying closing costs by getting a slightly higher interest rate or, like us, you can roll the closing costs into the new loan.

So, you might wonder – if rates are continuing to drop, why not wait and see how much lower they can go?

We’ve talked about market timing before, and how you might get lucky, but in the end, it’s not really possible to do. Look at it this way: refinancing now can save you a big chunk of money, and you have no idea what’s going to happen in the future. This could be a window of opportunity you can’t miss.

And if you lock in your rate, and it drops, you’ll probably be able to get the lower rate either with a free float down (where you get the lower rate automatically) or by paying a fee to break the rate lock.

At my credit union, they’ve been getting deluged with folks wanting to refinance, as well as people wanting to break their rate locks to get to a lower rate. So it’s been busy for them – and it’s probably busy wherever you’d get your mortgage, too.

Have you refinanced recently? Planning to refinance soon? Tell us your story in the comments.

About the author: Jason is the author of Automatic Finances: 17 Days to Your Financial Freedom, a guide to automated money management. He started investing thanks to a free lunch, and after finding out how he was getting the short end of the stick, he sought out how to do it right. More »

{ 2 comments… read them below or add one }

Sarah July 17, 2012 at 9:34 am

We are in the process of refinancing right now! I kept putting it off thinking it wasn’t worth it, but I’m glad I finally got my act together to do it. We are going from a 5% 30-year-fixed, to around 3.75%, which should drop our payments by about $250 every month! Super excited!

Jason Unger July 18, 2012 at 1:55 pm

As I mentioned on our Facebook page, Zillow is now reporting that 30-year fixed rates increased for the first time in 8 weeks. So lock in a low rate now. If it goes lower while you’re waiting to finalize, you should still be able to get the even lower rate.

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