Time to Refinance?

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.

Home - No Place Like ItWhen 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.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

6 Comments

  1. Hey James, Rates in my area are in the 4 to 4.25 range for a 30 year fixed loan. Refinance is only worth it if you can take off years compared to the old loan, because starting over the interest amortization time table is a bad decision. Good job paying it off in 11 years.

    • No doubt that refinancing is not necessarily always the best move. A hard look at the difference in the total loan amount, how much would be spent on interest and the time frame for each respective loan are musts. That is where a good calculator comes in handy.

      Thanks for stopping by and adding to the conversation, my friend.

  2. I made the huge mistake of not refinancing when I still had a job. After I “retired” I tried to refinance but without a W-2, banks wouldn’t touch me with a 10-foot pole (despite my assets). I’m considering going back to work part-time this year and as soon as that paycheck start rolling in I’ll try again.

    I will also then start focusing on paying off the mortgage ASAP. Retirement would be so much easier without that monthly burden of some $1,500. There is no such thing as good debt, just different grades of bad.

    • “I will also then start focusing on paying off the mortgage ASAP. Retirement would be so much easier without that monthly burden of some $1,500. There is no such thing as good debt, just different grades of bad.” Absolutely agree.

      Priorities 1A and 1B for the wife and I are to reach our nest egg goal and rid ourselves of our mortgage prior to retirement. Going into retirement sans a mortgage changes the complexion of retirement – certainly from a financial perspective – as much or more than anything else. Thanks for stopping by and sharing your story, my friend.

  3. We bought our house at a great rate and while I could gain a little bit on the rate now, not enough to make it worth refinancing. If people that have a higher rate still haven’t refinanced, they need to act soon because, even though it may take a year or two, rates are going to keep increasing and our low mortgage rate opportunities will begin to disappear.

    • No doubt that anyone planning to act needs to do so now. Rates are only going to increase. Thanks for stopping by, my friend.

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