The sing market in the United States is experiencing a resurgence after going through a slump during the earlier months of the COVID-19 pandemic. The U.S. Federal Reserve, having anticipated a negative economic impact from the pandemic, decided to lower mortgage rates.
As of October 2020, the 30-year fixed-rate mortgage has reached an all-time low of 2.83%. This is the lowest rate that Freddie Mac has recorded since the earliest mortgage market data available to the public (dated from 1971). These rates indirectly resulted in bidding wars in Salt Lake City, which has become the most competitive real estate market in the country today.
As has always been the case when mortgage rates drop, many homeowners scrambled to refinance their mortgages to take advantage of the possible reductions in their monthly mortgage dues.
The Benefits of Refinancing to a Low-Interest Mortgage
Refinancing can pull down credit scores, which is why most people don’t consider doing it when there’s no particular need, i.e. when their monthly income shrinks, and they can no longer afford their current mortgage. Sometimes, however, refinancing can offer benefits that far outweigh the slight reduction of a credit score.
The following benefits make it worth talking to mortgage lenders in Salt Lake City and exploring the possibility of mortgage refinancing:
Low mortgage rates instantly reduce your monthly payouts. If you set aside the net of your original and new mortgage payments, the sum of your accumulated savings can be huge. This money can go towards your retirement fund,
How much should you aim for when refinancing? Some say that a 2% reduction in your mortgage rate is ideal, but a more effective basis would be the equivalent savings of that percentage reduction. Lowering your interest rate by 2% may not be worth it, for example, if it will only net you $100,000 in savings. If you net the closing costs and other fees, the savings you get could be too small to justify all the effort and work that goes into refinancing your loan.
Shift to a shorter-term mortgage
Another way to save and take advantage of low interest rates is to refinance to a shorter term. You can pay less total interest long run if, on top of having a lower interest rate, you will also shorten your terms. So if you can afford it, consider refinancing your mortgage from, say, a 30-year fixed-rate to a 20-year fixed-rate. It’s going to cost you a bit more in the next few years, but the rewards will be substantial once your payments are done.
Reducing your term also gives the added benefit of officially owning your house and becoming mortgage-debt-free much earlier than you originally planned.
More cash flow
With fewer and lesser monthly payments, you can have more money to spend on your wants and needs. This can also give you peace of mind knowing that you have more cash for urgent expenses and emergencies. The increased liquidity can also be an opportunity to generate more income. You can, for example, use the extra money to finance a side business and make that capital generate profits.
Mortgages by design require you to pay dues for decades. You can stay on top of your obligations, however, and even reduce your total payments by exploring savings opportunities like refinancing when mortgage rates are at an all-time low. Talk to a refinancing officer to find out if this will be a beneficial step for you.