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When homeowners refinance, they are basically replacing an existing mortgage loan with a new one, which can be accomplished through any bank, not just the original lender. Oftentimes individuals will adjust their mortgage rate, the loan length or the amount borrowed – they can also use refinances to access equity.
And as luck would have it – it is currently a great time to refinance.
“It’s the beginning to the year, you’re doing your taxes anyway, probably looking at your whole financial picture … you might find some significant savings,” Tendayi Kapfidze, chief economist at LendingTree, told FOX Business, adding that mortgage rates are at their lowest levels in about three years.
As noted by Kapfidze, there are a couple of groups of people who are prime candidates for refinancing. The first is people who may have missed a previous opportunity to refinance when rates were low.
Another group is those who may have bought their house when their credit scores weren’t so great. If your credit score has improved after making your regular mortgage payments, you will likely be eligible for lower rates.
Further, if you have mortgage insurance – which can add on hundreds of dollars to your monthly payment – refinancing can eliminate those payments so long as your new balance is below 80 percent of the home value.
Other times, people will take what is known as a cash-out refinance, to replace their mortgage with a new loan for more than they owe on their house. They may use that cash to pay off debts, to do home renovations or for a variety of other purposes.
However, Kapfidze cautions that people should take a look at their overall financial picture before engaging in a cash-out refinance.
And it’s worthwhile to make sure you talk to multiple lenders, to ensure that you get the best terms possible.
“The average rate that you see in the marketplace … half the rates are even lower than that,” Kapfidze said.
There may be some costs and fees associated with refinancing – like origination and appraisal fees – depending on the terms of the lender. However, Kapfidze notes that some lenders will roll those into monthly payments so that the borrower has to pay no out of pocket costs.
The 30-year fixed mortgage rate, as of Thursday, was 3.5 percent. The 15-year fixed rate was 2.875 percent.