Last month, the Federal Reserve’s benchmark federal funds rate – the rate banks charge each other for holding short-term funds – was increased by 0.25%. Even with that minimal increase, it is still a great time to refinance your home if you are in the market. While I’m not currently in the market for a refinance – the wife and I refinanced a couple of years ago for a 15-year loan at 3.25% – I recently checked out the Zillow Mortgage Calculator to get a sense of what kind of rates are being offered in my area.
The benefits of acquiring a new loan can be substantial, particularly when you consider the rates are bound to move in only one direction for the foreseeable future … up! Money saved on repaying the loan for your home can be put to better use funding a retirement account, funding a college savings plan or trimming significant time off the length of a loan.
When my wife and I refinanced, our loan (30-year) rate dropped from just over 6% to the 3.25%. Since our focus is on eliminating our loan prior to retirement – one of our top priorities is to be mortgage free – we chose a 15-year loan. Therefore, our monthly payment stayed about the same, but we’ll pay off the house in substantially less time. Moreover, we make additional payments on the principal, with the goal of paying off the loan in 11 years.
Believe me when I say there will be no shortage of lending companies vying for your business. Of course it pays to conduct your own research, comparing the various lenders and the available options. Take advantage of online mortgage calculators and run different scenarios based on factors such as your income, property tax, credit score, the down payment and the purchase price.