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If you’re a homeowner who’s been considering a mortgage refinance, you might feel like your best chance has already passed you by. But fortunately, the window hasn’t closed yet. While interest rates are rising, the current mortgage market is still relatively favorable to homeowners, and while it’s unclear exactly how long these conditions will last, you can still potentially start the refinance process now and get the benefits.
Refinancing your mortgage can not only save you thousands of dollars in interest over time, but it can also lower your current monthly payment. So, if you’re worried that you’ve missed the boat on refinancing, here are three reasons it’s not too late to take advantage of a mortgage refinance.
1. Interest rates are starting to rise
The long-term 30-year Treasury bond is generally the barometer for 30-year fixed mortgage rates, and when those bond rates started dropping at the start of the coronavirus pandemic, mortgage rates plummeted along with them.
Those rates began inching back up again at the start of 2021 and throughout the spring before settling in slightly lower throughout the summer. But they’ve been slowly creeping back up since then. According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage was 3.11% at the end of 2021.
While that’s significantly higher than the 2.65% we saw at the end of 2020 — which was the lowest level in almost 50 years — it’s still relatively low by historical standards. So if you’re currently paying a higher interest rate on your mortgage than what’s available today, now’s the time to take a look at whether you can lock in a lower rate with a refinance.
And if you’re already deep into your existing 30-year mortgage, this also might be a good time to use a refinance to shorten your mortgage. The rates on 15-year mortgages are also at historical lows, so you could take advantage of these lower rates to cut a few years off your current mortgage and save thousands of dollars in interest over time.
In addition to standard fixed-rate mortgages — which lock you into one interest rate over the entire length of the mortgage — another option is an adjustable-rate mortgage, or ARM. These mortgages typically start with a locked rate for the first three to seven years, then adjust every year after that for the remainder of the mortgage. The new rates can be higher or lower each year, depending on the prevailing interest rates at that time.
Normally, adjustable-rate mortgages offer lower rates in the first few years when compared to a standard 30-year fixed-rate mortgage. However, in an odd quirk of the current market, rates on fixed-rate mortgages and ARMs are very similar at the moment. That’s because lenders eventually expect overall rates to go back up and don’t want people to get an ARM now and then refinance it with another lender down the line.
As a result, in some cases, the interest rates on ARMs can be practically identical to fixed-rate mortgages. That means this is your chance to get a locked interest rate for the next 15 or 30 years at roughly the same interest rate you’d usually only be able to guarantee for five or seven years.
And if you already have an adjustable-rate mortgage, you have an opportunity to avoid worrying about future adjustments by locking in a low fixed rate now with a refinance. This could be ideal for people who had originally planned to only stay in their home for a short time but are now considering extending their ownership for a longer period.
3. The demand for refinancing has dropped
In the heat of record-low interest rates in 2020, there were so many people who wanted to refinance that it was sometimes difficult to close on a new mortgage, resulting in reports of delays.
But now, even though new home inventory remains tight in many parts of the country, the pool of people who want to refinance has shrunk. According to the Mortgage Bankers Association’s most-recent weekly survey, refinance applications decreased 2.7 percent on a seasonally-adjusted basis from two weeks earlier and are down 40% from the same time last year.
That means if you’re looking to refinance, you’ll have a better chance of getting a deal done in a timely manner, since the system isn’t as clogged as it was before, and you can still take advantage of today’s low interest rates.
But you shouldn’t wait too much longer. Lawrence Yun, chief economist at the National Association of Realtors, recently told CNN Business that he expects the 30-year fixed mortgage rate to increase to 3.7% by the end of 2022. That makes it important to lock in today’s lower rates while you still can.
There are many ways to start a mortgage refinance, but one of the easiest is to go through an online marketplace, which allows you to get refinance offers from multiple lenders all at the same time while only having to submit your information and requirements once.
An online marketplace lets you compare options without having to reach out to individual banks, credit unions and other lenders one at a time. Getting started is a relatively quick process, which is handy because while conditions for refinancing are still favorable today, they can and likely will change in the future.
While it’s impossible to predict exactly how quickly interest rates will start to rise again, the one thing that’s certain is that they won’t remain this low forever. So if you’ve been worried that you missed your chance to refinance your home, the good news is it’s not too late. But you’ll want to start exploring if a mortgage refinance makes sense for you sooner rather than later.