Refinancing your mortgage allows you to pay off your current home loan in full to get a new one. If interest rates have decreased from the time you initially closed your existing mortgage, refinancing allows you to lower your monthly payment or use some of the equity in your home for other purposes. If interest rates increase, you can keep your existing mortgage and enjoy the satisfaction of paying lower rates while new home buyers are forced to pay higher interest rates.

Families who took out mortgages in 2013 or 2014 or before 2011 are likely paying well over 4.5 percent interest. This is an excellent time to check your rate to see if you would save money by refinancing your mortgage. The average interest rate on a 30-year fixed-rate mortgage in NYC is currently 3.94 percent, and interest rates on 15-year fixed and adjustable-rate mortgages are also down.

Average Interest Rate for 30-Year, Fixed-Rate Mortgages

Average interest rates decreased more than 1 percent between 2011 and 2013, quickly followed by an increase of more than 1 percent. From 2014 to today, interest rates have been on an overall decline with the usual up and down market fluctuations in between.

Years ago when mortgage rates plummeted, people worried that the economy of the United States was headed into another recession. The Federal Reserve stepped in and made it easier to get approved for a mortgage to prevent a recession. Today, the economy is looking much stronger than it has in recent years, and there is a good possibility interest rate will start to increase.

The stronger economy and the confidence in reduced risk of inflation has investors around the world putting their money into safe American assets, including bonds packaged with government-sponsored mortgage products from Freddie Mac and Fannie Mae.

Refinancing Rule of Thumb

When interest rates are lower many homeowners, take advantage of moving to a different type of mortgage to pay their home off sooner. For example, if you can pay the same or close to the same amount of money per month on a 15-year mortgage as you do your current 30-year mortgage, refinancing to the shorter term to pay off your home sooner would make sense.

If your goal of refinancing your mortgage is to decrease your payment, look for rates at least one full percentage point lower than what you currently pay for your mortgage. This rule of thumb holds true even when you consider the closing costs and other fees associated with the refinancing. Refinancing fees vary from lender to lender, but are often in the thousands of dollars and include origination fees and property appraisal fees, much like you paid for the original mortgage.

You might consider refinancing even if the rate isn’t a full percentage point lower if you intend to stay in your home for many more years. Even small monthly savings over a long period will justify the costs of refinancing.

To see what kind of savings you might experience, try an online calculator. Just plug in your numbers and let the tool tell you your potential savings.

As with any significant financial decision, individual needs must be taken into consideration. Analyze the pros and cons carefully and seek the wisdom of professionals before deciding to apply for a mortgage refinance.

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