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It's impossible for us to say exactly what your interest will be on that new loan because there are too many variables involved. However right now it's possible to refi with a 30-year fixed mortgage at 3.63% and an APR of 3.75%. Compare that with the interest rate you’re currently paying and you’ll see how much you might save.
Don't forget those annoying closing costs
If you look only at today's' interest rates versus your current interest rate you will be missing something – those annoying closing costs. Again, we can't tell you precisely what those costs will be but homebuyers typically pay between about 2% and 5% of the cost of refinancing their loans. As an example of this, if you are refinancing $150,000, your closing costs will probably be somewhere between $3000 and $7500. However, according to one recent survey, buyers generally pay roughly $3700 in closing costs. This is significant money and you need to factor it in before you decide to do that refi. Let's say your closing costs will be $4000 and you expect to save $200 a month. At that rate, it will take you 20 months before you break even and start having that extra money in your pocket.
If you can’t qualify for HARP
If your mortgage wasn't guaranteed by Fannie Mae or Freddie Mac or the VA, don't despair. Quicken Loans is currently offering refi loans as a 5/1 ARM at 2.97% APR. If you could put 20% down on a 30-year fixed refi, have a credit score of 740+ and are looking to borrow $230,000 you might qualify for a loan at 3.577% or 3.669%.
This won't last forever
Interest rates this low won't last forever. In fact, the Federal Reserve Bank is making noises that it will increase the interest rate at the end of this year or the first quarter of next. The Fed’s goal is to keep inflation under control. The way it does this is by manipulating the Target Federal Funds Rate to control our money supply. When inflation is low as it has been for the past several years the Fed keeps that rate low so there is more money available for banks to lend. However, as soon as the Fed sees a serious uptick in inflation it will raise the Target Federal Funds Rate, our money supply will shrink and there will be less money to lend. When this happens the interest rates for refi will go up accordingly.
Whether you have a mortgage that was guaranteed by Freddie Mac or Fannie Mae or it's a conventional mortgage, don't delay. Contact your mortgage holder or mortgage servicer today to see what a refi could do for you. You might find you could save enough to afford that dream vacation you’ve always wanted to take, to buy a new car or to help your kids pay for their educations. Even just $200 a month is $2400 a year, which could go a long way to paying for that dream vacation.
In other words, as our local billionaire advised his son, you should go get some money while they're still practically giving it away.