Mortgage refinances are booming — here's why you should apply today

A new fee could cause interest rates to rise soon. (iStock)

Mortgage rates dropped to all-time lows in the wake of the coronavirus pandemic -- and homeowners have taken notice by refinancing their mortgage loans in droves.

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In fact, just last week, refinancing activity was up 86% over the year, according to the Mortgage Bankers Association. At one point in April, refinancing had increased by nearly 200%.

With lower rates available, it's no surprise there's currently a refinance boom. It's a good time to refinance to a lower rate interest rate and, in turn, lower your monthly payments and cut the life of your loan. But if you're thinking about refinancing your mortgage, then you should act fast — before this new fee goes into effect and the process gets more expensive.

Here’s everything to know about refinancing your mortgage (and why you should do it today).

What are today’s mortgage rates?

The mortgage refinancing rush is mainly because of record-low mortgage and refinance rates. Here are mortgage rates as of Oct. 1, according to Freddie Mac.

  • Mortgage rates for 30-year fixed mortgage: 2.88% (up 0.02% from the record-low rate of 2.86% set on Sept. 10)
  • Mortgage rates for 15-year fixed mortgage: 2.36% (a 0.78% decrease from the year prior)

Based on the current mortgage and refinance rates, it may be a good time for you to refinance, too. To see how much you could save on your monthly mortgage payment today, crunch the numbers and compare loan rates and mortgage lenders using Credible's free online tool.

HOW TO REFINANCE YOUR MORTGAGE

Why should I refinance my mortgage now?

There are two big reasons you should refinance your mortgage today:

  1. A new mortgage refi fee is going into effect
  2. Mortgage rates won't stay this low

A new mortgage refi fee is going into effect: Starting December 1, mortgage purchasers Fannie Mae and Freddie Mac will charge lenders a 0.5% fee on all refinances. Though this is technically a cost to the mortgage company, the Mortgage Bankers Association predicts it will be passed onto homeowners in the form of higher interest rates.

Submit your mortgage refinance application today to avoid the extra fee.

HOW TO GET THE BEST MORTGAGE REFINANCE RATES

Mortgage rates won't stay this low: Mortgage rates fluctuate daily, and rates won’t stay this low forever. Higher rates could come soon. Since it takes about 50 days to finalize a refinance loan, lenders would need to account for the new fee by mid-October — or sooner. Every mortgage lender will have its own timeline, though.

That makes it more important than ever to shop around for your new home loan. A tool like Credible can help you do it faster and with fewer forms. Get started and start saving now.

IS NOW A GOOD TIME TO REFINANCE YOUR MORTGAGE?

How much could you save by refinancing your mortgage?

The current rate for a 30-year fixed-rate mortgage is down from 3.64% the same time last year, at the time of reporting. The difference might look small, but the long-term savings can be substantial.

For example, today’s rates on a $200,000, 30-year loan would mean a monthly payment of $832 and $99,685 in interest costs across the entire loan term. At 2019’s higher rates, you’d pay $913 per month and almost $30,000 more in interest over the long haul.

But it’s not just 30-year loans that can offer you those savings. Rates on other mortgage types are down, too. Adjustable-rate mortgages have seen declining rates in recent months, averaging 2.9% this week — a drop from 3.38% in 2019.

Though refinancing that same $200,000 loan to a 15-year mortgage would mean a higher payment (a little over $1,300 a month), it would mean paying a mere $38,353 in interest costs. That’s $60,000 saved over time.

Of course, rates vary depending on your lender, credit score, and other details. To see what rates you qualify for, use a tool like Credible and shop around with several lenders at once.

HOW TO LAND THE BEST MORTGAGE REFINANCE PRICE

How do I apply for a mortgage refinance?

If you do opt to refinance, make sure you’re prepared. Since refinancing is essentially just replacing your old loan with a new one, you’ll need to go through all the same steps you did with your original mortgage.

  • Fill out an application
  • Submit documentation (like tax returns, W-2s and bank statements)
  • Pay closing costs
  • Close on the loan

Closing costs on refinancing loans typically clock in around 1% to 2% of the loan’s balance, not including taxes and other local fees. Before getting too far into the refinancing process, do some savings calculations: use an online mortgage refinance calculator to understand what a refinance might mean for your costs — both upfront and over the long haul.

You should also get loan estimates from several lenders, as fees, rates, and closing costs can all vary from one company to the next. You can also use Credible to find your rate today.

HOW TO REFINANCE YOUR MORTGAGE IN 5 EASY STEPS

Ask for help if you need it

Refinancing can be a smart move, but it can also be overwhelming. If you’re feeling confused or just have questions, reach out to an experienced loan officer at Credible for help.

HOW REFINANCING YOUR MORTGAGE CAN PUT MONEY BACK IN YOUR POCKET

You can also contact an accountant or financial advisor if you’re not sure refinancing is the right move for your household. They can work the numbers and ensure you’re making the best decision for your finances.