Interest rates are an interesting piece of the real estate puzzle. They ebb and flow with the movement of the real estate market. Some days they are high, others they are low, but the one thing you can count on with interest rates is that they are never, ever constant. For this reason, when you want to refinance you want to choose your time carefully. Never just jump into a refinance until you know to some degree what the trends are for the mortgage refinance rates. Let’s take a look back over the years and see what today’s market rates tell us about tomorrows trends.
Rates Today vs. Rates from Past Years
When refinancing a home, one of the first questions you should ask yourself is what rate can you qualify for? Will you be on the high side of the real estate market, qualifying for rates that are above average, or do you have great credit so you’re sure you can qualify for a lower rate? Knowing the answer to this question will help you ask the next question, which is can I get a mortgage refinance rate that is lower than the rate I have now?
Historically, interest rate haven’t always been friendly. At the beginning of 1990 the mortgage rates were at an average of about 10%. That number has fluctuated over the years, but overall it has dropped. By 2004 the average interest rate was closer to 5%. Fast forward ten years, to 2014, and the rates today are hovering around 4.5%. So by studying this trend you may think that the rates are dropping. However, there are a few factors that come into play. First, prior to the economic crash around 2008, rates were at an average of about 6%. Since the interest rate is directly tied to the economy, when the economy crashed the rates dropped. They continued to drop until they hit a low in the 3.5% range. A 3.5% interest rate is unheard of. In the last thirty years, we have not seen rates this low, and who knows when we will see them again.
At the beginning of 2013 the rates were around 3.5%. By the beginning of 2014 the rates jumped to around 4.5%. In a year the average rate increased by a full percent. However, at 4.5%, they are still quite low. So to answer your question regarding the lower rate, the answer is more than likely. The rates we have today are quite a bit lower than they were five or ten years ago so there is a good chance you can get a lower mortgage refinance rate.
Do I Take Advantage of Mortgage Refinance Rates?
Whether or not you choose to refinance when the rates are low will be determined by a few different factors. First, what is your current interest rate? If you’ve been locked in at a rate that’s considerably higher than the current trends, and you know you can qualify for the national average, than a refinance will be worth looking into. However, time is a factor with a refinance as well. This doesn’t mean the time it takes to refinance; what it means is the time you’ve owned your loan. Typically speaking a refinance is most beneficial when it is done near the beginning of the original loan. This is because of the amortization schedule and the way interest is paid down. If you’ve been locked in at a 10% rate and you’ve paid down the original loan for twenty years, you’ve paid down quite a hefty chunk in interest. Refinancing to a ten year mortgage with the lower interest may save you money, but it isn’t a guarantee simply because of refinance costs and the fact that you’ve already paid quite a bit in interest. If you want to determine how much you will save or whether you’ll end up losing money, you’ll want to consult a refinance calculator.
If you’re asking yourself whether you should secure these rates for your refinance, you need to figure out whether you will be able to save money. That’s the bottom line. If you’re doing a standard refinance simply to secure lower interest rates, than get that refinance calculator and start plugging in some numbers. Refinances cost money, paying down interest costs money, starting a loan over costs money. All of these costs add up and reduce the value of the refinance. So make sure you do your math before you sign yourself into a financial situation that costs more than it’s worth.