There is no doubt that mortgage interest rates are declining. But determining whether you should refinance your mortgage depends on numerous factors.
Economic challenges and pressures from the COVID-19 pandemic have resulted in a remarkable influence on the interest rates for U.S. mortgages. The Federal Home Loan Mortgage Corporation (Freddie Mac) has reported record low numbers on four different occasions in 2020. In recent days, the rate has faintly ticked back up, but it remains historically lower than average.
Lower rates have created a windfall of borrowers rushing to refinance their mortgages. It has also generated an urgent interest in North Carolina over the critical question of whether to refinance.
Interest rates in North Carolina have mainly followed national trends. The state’s mortgage rate for the popular 30-year fixed option increased by .08 from last week. It remains at a record low 3.14%. Numbers for the adjustable-rate mortgage (ARM) in the state dropped by a significant 0.43% from last week, landing at an overall 2.54%.
The record low rates in North Carolina and across the country are an enticing prospect for mortgage holders. But deciding if it is the right time to refinance your mortgage can vary, depending on your exact circumstances.
Common Reasons for Refinancing
Refinancing a mortgage is paying off a current loan by replacing it with an alternative loan. A variety of reasons are involved in the decision to refinance a mortgage:
- Borrowers may want a new type of loan. An example of converting to a new kind of loan might include changing from a fixed-rate mortgage to an ARM.
- Certain borrowers could also want their home equity to finance a renovation, medical costs or other life events.
- A historical interest from borrowers to obtain a lower interest rate on their loan.
- Shortening the term of the loan.
Factors to Consider for Refinancing a Mortgage
You can consider the following factors to determine if the record-low interest rates make now a viable opportunity to refinance your mortgage:
- Closing costs: Refinancing a mortgage involves closing costs and other associated fees. It’s critical to calculate these costs when assessing if a lower interest rate will result in costs-savings over the loan’s life.
- Federal refinancing fee: Freddie Mac announced the application of a 0.5% fee on mortgage refinances. The implementation of this fee was delayed from Sept. 1 to Dec. 1.
- Stiffer qualification standards: Disruptions to the economy have resulted in lenders raising the standards governing how borrowers can qualify for a new loan. This may include higher minimum credit scores or lower debt-to-income ratios.
- Forbearance limitations: The CARES Act, signed into law in March 2020, allowed borrowers to claim forbearance from monthly mortgage payments. Remaining in forbearance on payments could present limitations to qualifying for a refinance.
You can also compare loan terms and mortgage lenders when calculating your potential to save costs with a lower interest rate.
The rare economic realities facing us right now present a potentially fortunate opportunity. Still, numerous factors influence whether these unique conditions justify refinancing your mortgage. You can seek professional consultation to assess your circumstances and determine if now is the right time to refinance.