# The mortgage rate is at its lowest. Should we refinance?

On March 5, the Federal National Mortgage Corporation, aka Freddie Mac, announced that the rate on 30-year conventional fixed-rate mortgages had fallen to the lowest level ever recorded in its nearly 50-year history of its weekly survey. . The 15-year mortgage rate also fell, falling to a point not seen since July 2016.

The 30-year rate fell to 3.29%, while the 15-year rate fell to 2.79%. Since it will be a week between this writing and Freddie’s next report, it’s entirely possible that rates have fallen even further as you read this. So the question remains; now is the time to refinance?

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The answer depends on your motivation. Will the refi aim to reduce your monthly payment? Maybe your goal is to shorten the term of your mortgage so you can pay it off years sooner and save thousands of dollars in interest. A third motivator may be to get rid of mortgage insurance. Another popular option would be to simply generate some cash so that you can buy that cruise ship that you have been looking for online for five years.

I recently read on bankrate.com that over 18 million homeowners can reduce their mortgage payments through refinancing. I will buy this. What Bankrate doesn’t say is that there is a significant trade-off associated with reducing its monthly payment. This compromise takes the form of extending the term of your mortgage obligation. Refinance a 30-year mortgage with 25 years remaining in a new 30-year note, and you end up with what is essentially a 35-year mortgage bond. This is where the compromise lies.

Suppose you took out a new loan for $ 150,000 over 30 years in March 2015 when the rate was 3.89%. Your principal and interest payment, which hasn’t changed since the day you took out the loan, is $ 706.64 per month, and your loan balance is now just over $ 135,000. Refinance this amount for an additional 30 years at 3.29% and your monthly P&I payment decreases by $ 116.14, to $ 590.50.

Let’s also say that the refinance cost you $ 3,000. From my math in elementary school, it would take about 26 months for the savings to catch up with the cost – meaning you won’t start realizing the benefits of refi until after a little over two years. The calculations associated with your current loan will reveal how long it will take you to recover your costs. The idea is to keep the property for at least as long as it takes to cover the cost of refinancing.

Refinancing to reduce the term of your mortgage produces a very different result. Swapping your 30 with the remaining 25 for a new 15 will not only shorten the term of your mortgage by 10 years, but will also save you significant interest savings. The question is what effect will the swap have on your monthly payment? Well, there is an app for that. Bankrate.com has a number of easy-to-use mortgage calculators that you can use to plug in “what ifs” using your actual mortgage numbers.

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Let’s take that same five year loan with a balance of $ 135,000 and a monthly P&I payment of $ 706.64 and repackage it into a new 15 at 2.79%. The result is a new monthly P&I payment of $ 918.72, which is $ 212.08 more than your old payment. Can’t afford the extra $ 212 per month in exchange for an immediate ten-year reduction in your mortgage? Consider refinancing yourself into a new 20 year product. Since the 20-year rate is the same as the 30-year rate, the new payment would be $ 768.46 at 3.29%, or about $ 60 more per month to shorten the remaining term of your five-year mortgage. .

To withdraw money, you generally need to have at least 20% of the equity in your property, which means your loan balance is no more than 80% of your property’s value. If you have equity, you can withdraw it by refinancing your loan balance plus any amount of dollars to make up the difference between your balance and 80% of the value of your property. Loans with a higher loan-to-value ratio are also available, but at a higher cost. Refinancing with FHA or VA loans allows borrowers to refinance up to 96.5% and 100%, respectively, of a home’s value. Depending on the state of the secondary mortgage market, where mortgages are bought and sold, the rates for government guaranteed loans are often lower than their conventional cousins.

**National News:**What zero rates and less than 1% bond yields mean for your mortgages, student loans and credit cards

Determining whether to refinance is only half the battle. The other half, and the often more daunting skirmish, is finding the lender who offers the money at the lowest rate and with the lowest refinancing costs.

Refi costs come in two different forms. One includes the typical costs associated with obtaining a mortgage – that is, appraisal, title and property insurance, and a handful of other products and services. The other component is the fees that lenders charge for their services. The latter dictates the final cost of the refi. Lenders have the right to set their own fees, so it’s up to you to do your due diligence and shop around like every dollar counts.

Meet at the fence.

*Gary Sandler is a full-time real estate agent and president of Gary Sandler Inc., real estate agents in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or [email protected]*