- Mortgage rates are falling to unprecedented lows in 2021 — refinance now to save money
- Are mortgage rates going to drop more in 2021?
- Mortgage refinance options
- 1. Rate-and-term mortgage refinance
- 2. Cash-out refinance
- 4 things to consider before refinancing
- 1. Forbearance
- 2. Credit history
- 3. Home equity
- 4. Cost
- How do you shop around to refinance?
- Mortgage Rates Keep Sinking — Why It Might Be a Good Time to Refinance Your Home Now
- Why should I refinance?
- Should I refinance now or hold out for lower rates?
- Act now before refinancing gets pricier
- Mortgage Interest Rates Forecast: Will Rates Rise In 2021?
- Rates May Remain Above 3%
- Refinancing Will Slow in 2021
Mortgage rates are falling to unprecedented lows in 2021 — refinance now to save money
As 2021 takes hold, you may be considering refinancing your home. As current rates hover around historic lows, homeowners have an unprecedented opportunity to save thousands of dollars. But if you’re unfamiliar with refinancing or what options are available, it can be an overwhelming process. This quick guide will offer some insight into what a mortgage refinance could look in 2021.
Comparing rates is essential for saving the most money. You can view loan options across multiple lenders with fewer forms to fill out on a site Credible. This can help save you time and money.
Are mortgage rates going to drop more in 2021?
Here are the rate forecasts: In September, the Federal Reserve announced that they plan to keep lower rates through at least 2023 in response to the pandemic.
In March 2020, the Federal Reserve announced an emergency rate cut to nearly 0%. The cut was an effort to stabilize the economy as the coronavirus pandemic shut down businesses and put millions of Americans work.
In January 2020, before the emergency interest rate cut, the average 30-year fixed-rate mortgage was 3.60% and the average rate for a 15-year fixed-rate mortgage was 3.04%. Today, the rates are nearly a full percentage lower. The average 30-year fixed-rate mortgage is 2.73%, and the average 15-year fixed-rate mortgage is 2.21%, according to Freddie Mac.
You can use tools Credible to compare rates and terms from a variety of reputable lenders. Get started today to see what kind of offers are available to you!
You should also consider using a mortgage refinance calculator to give you an estimate of what your new monthly costs could be. This tool can help you decide if it’s worth pursuing a refinance.
Mortgage refinance options
When considering a refinance, you have two basic options, the rate-and-term mortgage refinance and the cash-out refinance. Both offer unique benefits that might best fit your financial needs.
- Rate-and-term mortgage refinance
- Cash-out refinance
1. Rate-and-term mortgage refinance
Rate-and-term mortgage refinances are a common option. A rate-and-term refinance allows you to change the rate or the repayment terms of your loan.
For example, you could refinance from a 30-year fixed-rate mortgage to a 15-year-fixed-rate mortgage. Alternatively, you could refinance to lower your interest rate.
Some borrowers even refinance from an adjustable-rate mortgage to a fixed-rate mortgage.
In theory, you could even go from a 30-year ARM at 3.5% to a 15-year fixed-rate mortgage at 2.5%.
If your current mortgage rate is higher than today's averages, then you will want to consider refinancing. You can visit Credible to find lower rates and lenders from the comfort of your home.
4 WAYS TO MAXIMIZE YOUR MORTGAGE REFINANCE SAVINGS
2. Cash-out refinance
When you opt for a cash-out refinance, you replace your current mortgage with a new loan that’s more than what you currently owe. You receive funds exceeding what you owe in cash. For example, if you owe $100,000 on your home and refinance to a loan for $150,000, the extra $50,000 would be the total cash out you would take.
If you want to know more about a cash-out refinance, visit an online marketplace Credible to view refinance rates and get cash out to pay off high-interest debt or cover another expense. After all, it's important to always find lower rates.
IS A CASH-OUT REFINANCE A GOOD IDEA?
4 things to consider before refinancing
Before you apply for a refinance, some situations factor into whether now is the right time for you to refinance and/or what type of rates you can expect. Here are some factors you should consider to determine if you're ready to refinance.
- Credit history
- Home equity
Many homeowners took advantage of forbearance options provided by the CARES Act. You may still be able to qualify for a home refinance if you can make your monthly payments on time for at least three months following your forbearance. Most lenders won’t refinance a home when it is in forbearance.
2. Credit history
Since a refinance replaces your old loan with a new one, you’ll need to qualify for the new loan in the same way you did for your original mortgage. Your lender will want to look at your credit score and credit history. You’ll qualify for better rates with higher scores.
Not sure what your credit score is? Credible can help set you up with a free credit monitoring service so you'll never have to worry about your credit score or credit history again. Click here to sign up for free.
3. Home equity
Ideally, you have at least 20 percent equity in your property before you refinance. If you have less than 20 percent, you’re ly paying PMI (private mortgage insurance). While some lenders will refinance with less than 20 percent, you’d have to refinance again in the future to get rid of your PMI.
SHOULD YOU REFINANCE A HOME EQUITY LOAN?
Refinances aren’t free. In addition to fees your lender charges, all new refinances over $125,000 will pay an extra .5% adverse market fee. The average refinance costs several thousand dollars, so make sure you can recoup the cost before leaving the property.
How do you shop around to refinance?
If you want to take advantage of low mortgage rates, this could be the year. Don’t panic if you’re not quite ready though, as rates should remain low for the next year or two.
When shopping for the best rates and lenders, use an online marketplace Credible. Credible can introduce you to multiple lenders at once and help you pick the one that fits your needs best.
WHY IT'S A GOOD IDEA TO REFINANCE YOUR MORTGAGE WHILE RATES ARE LOW
Mortgage Rates Keep Sinking — Why It Might Be a Good Time to Refinance Your Home Now
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In the past few months, mortgage interest rates have continued to drop, driven by the coronavirus pandemic and reduced Fed interest rates. As of January 21, 2021, 30-year fixed-rate refinance rates dropped to 2.625%, while rates for 15-year fixed-rate refinance loans fell to 1.875%, a new 107-day low.
For homeowners looking to save money, refinancing your mortgage now and taking advantage of these historically low rates before they rise again can be a strategy to lower your housing costs.
Why should I refinance?
With mortgage refinance rates reaching historic lows, refinancing your home loan might save you a substantial amount of money.
Say you took out a home loan for $300,000 in 2018 with a 30-year term and a fixed interest rate of 4.94%. If you refinanced now and qualified for a 30-year fixed-rate loan at 2.90% interest, your monthly payment would decrease from $1,599 per month to just $1,211 per month — a savings of $389.
Plus, you would save $46,266 in interest charges over the life of this new loan, even after factoring in closing costs.
Refinancing is best if:
- You qualify for an interest rate significantly lower than what you have now
- You intend to stay in your home for a long time
- You want to get rid of private mortgage insurance (PMI)
Refinancing may not be the right option if:
- Your new interest rate is not at least half a percentage point lower than your current one
- You plan on moving within the next few years
- You have a low credit score
Keep in mind that some mortgage lenders are becoming more stringent with their underwriting processes. If you have recently experienced income decreases due to the COVID-19 pandemic or have a lower credit score than before, you may not qualify for the loan you’re seeking.
If you’ve decided that refinancing your mortgage is right for you, visit Credible to compare personalized rates from multiple lenders all in one place.
Learn More: How to Refinance Your Mortgage in 6 Easy Steps
Should I refinance now or hold out for lower rates?
If you’re many people, you’re probably worried about refinancing now in case rates drop again. However, holding out for another significant rate drop could be a costly mistake. Rates can start increasing at any time, and mortgage refinancing is about to get more expensive.
As of Dec. 1, 2020, Fannie Mae and Freddie Mac (the two agencies that buy most of the mortgages in the U.S) will start charging a new adverse market refinance fee of 50 basis points (0.500%).
The fee is meant to help with many of the expenses Fannie Mae and Freddie Mac sustained because of Covid-19’s economic impact.
Refinance loans that are over $125,000 are subject to this new fee, while refinance loans equal to or less than $125,000 are exempt.
In response to the new fee, some lenders have increased their rates to offset the additional cost, passing on the added expense to borrowers.
You can explore your mortgage refinance options in minutes by visiting Credible to compare rates and lenders. Check out Credible and get prequalified today.
Act now before refinancing gets pricier
If you’ve been putting off refinancing your home, don’t delay much longer. Mortgage refinance rates are at record lows, and you have a limited time before more lenders increase their rates as a result of the new adverse market fee.
Mortgage refinances can take up to two months to close — the average time to close is 51 days, according to the latest data from mortgage technology company Ellie Mae — so you need to act quickly to avoid higher rates.
You can compare actual refinance rates from multiple lenders at once using Credible’s robust marketplace. Click here to learn more about each loan type and how to secure a lower interest rate today.
Kat Tretina is a contributor to Credible who covers everything from student loans to personal loans to mortgages. Her work has appeared in publications the Huffington Post, Money Magazine, Business Insider, and more.
Mortgage Interest Rates Forecast: Will Rates Rise In 2021?
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The average rate on a 30-year fixed-rate mortgage was below 3% for the latter half of 2020. But at the beginning of March 2021 that seven-month streak ended, and most experts predict rates will continue to climb.
Rates May Remain Above 3%
At the end of 2020, economists forecasted that rates would break the 3% range in 2021, but not rise much higher than 3.1% to 3.3%. Still, at the high end of the forecast, rates could increase by more than half a percentage point above their record-low mark.
So far, those predictions have proven correct.
March marked the end of sub-3% rates, and they haven’t stopped inching up ever since.
Related: Best Mortgage Lenders
However, it’s important to keep in mind that rates are still well below where they were at the beginning of 2020, when they closed in on the 4% range. The silver lining is that rates are expected to remain fairly steady throughout 2021—not moving much higher than the low 3s.
“Rates are more ly to rise than fall, but it will be an inconsequential move,” says Lawrence Yun, chief economist at the National Association of Realtors. “The growing economy will raise the mortgage rate to around 3.1%, which is still near historic lows.”
Although a few percentage points is not a shocking jump, it can add hundreds of dollars to monthly mortgage payments and tens of thousands of dollars to the total cost of the loan.
The Mortgage Bankers Association (MBA) says it believes the average rate for a 30-year mortgage will start at 2.9% in the first quarter of 2021 and gradually increase to 3.2% by the end of 2021. Looking even further down the road, the MBA has 2022 rates peaking at 3.6%.
Higher rates can reduce buying power, especially as home price appreciation is on track to increase in 2021. The MBA forecast for home price appreciation in 2021 is 5.1%, which is a small dip from 5.3% in 2020.
In the following scenarios, you can see how even a small jump in interest rates can substantially increase the cost of a mortgage. These figures do not include insurance or taxes. For someone with a $500,000 home loan, a 4-basis point jump will cost them $115 more per month and $41,400.44 more over the life of the loan on a 30-year, fixed-rate mortgage.
The 10-year Treasury yield is typically an indicator of where mortgage rates are headed. The MBA predicts yields to rise in 2021, hitting 1.4% by the fourth quarter, on the assumption that the recovery will have a positive impact on the economy and that government spending will increase under President-elect Joe Biden’s incoming administration.
“There will be a broader economic impact on the second half of 2021. We expect more government spending and a new stimulus bill with Biden in office, which will put upward pressure on Treasury yields and rates,” says Joel Kan, associate vice president of economic and industry forecasting for the MBA.
Refinancing Will Slow in 2021
As mortgage rates continue to climb, fewer homeowners will be able to save money by refinancing their mortgages.
We’re seeing this happen in real time. In February, 18 million homeowners were refinance eligible, that is they could reduce their interest rate by 0.75% or more, according to data from Black Knight, a mortgage technology, data and analytics provider. But as rates surged above 3%, the number of eligible candidates shrunk to just 12.9 million homeowners—a 30% reduction in less than a month.
The MBA predicts that refinancing volume will fall from $2.149 trillion in 2020 to $1.191 trillion in 2021, mainly due to rising rates. There will be an even sharper decline of refinancing volume in 2022 to $573 billion, according to MBA’s latest forecast. The refinance share of all mortgage originations is predicted to drop to 41% in 2021 from 57% in 2020.
“Refinance activity will depend on rates. Even if rates rise a few basis points above where we’re at now, we can expect a pretty robust refi demand market in 2021,” says Odeta Kushi, deputy chief economist for First American Financial Corporation, a title insurance provider. “There are still many homeowners who can save money by refinancing.”
Since July, more than 15 million borrowers have been eligible to refinance as rates have stayed below 3%. The number of potential savers has grown as rates have fallen, expanding to 19.9 million people when the average mortgage rate fell to 2.67% on Dec. 17, according to Black Knight, a mortgage technology, data and analytics provider.
As rates rise, the pool of people who can save money by refinancing their mortgage will start to shrink again. If rates hit 3.13%, 6.2 million borrowers will no longer be able to cut costs with a new mortgage.
Homeowners who are considering refinancing might want to do it sooner than later, as rising rates can cut into your savings. The best way to ensure you get the lowest mortgage rate is to make sure your credit is in good shape and shop around.
Don’t settle for the first offer you get—unless you can lock in a rate as close to 2% as possible. It’s always a good idea to get several loan estimates and compare the total costs. Remember, your interest rate is just one cost of your loan, so you’ll want to compare APRs, which will give you the total cost, including lender fees.