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It's Time to Lock In a (Much) Lower Mortgage

A silver lining amid the economic strains of 2020 is the sharp drop in interest rates on a range of consumer loans. At the time this blog post was written, a 30-year mortgage currently comes with a 3.50% rate, while 15-year mortgages now have rates below 3.0%. And rates may fall even lower in coming weeks and months. That's because banks have their hands full with refinancing activity. Once they have processed all of the current applications, they'll be hungry for new business, and are expected to lower their mortgage rates yet again.

As a good rule of thumb, it makes sense to swap your mortgage for a better one if the new one offers an interest rate at least 1.0% below your current rate. The move could shave a few hundred dollars or more off of your monthly mortgage. Better still, consider a 15-year mortgage. The ultra-low rates on offer here may not translate into a much lower monthly payment, as the total mortgage is compressed into a shorter time frame. But you may own your home debt-free a lot sooner. 

Some homeowners that have been paying off their mortgage for many years and have less than 10 years left may not be well-served by refinancing. Adding many more years until a mortgage is fully paid off means having another large monthly bill--perhaps well into retirement. 

Remember that you want to ensure the highest quality credit score possible if you begin talking to a bank or mortgage broker. That means you should off taking on any other loans, such as car loans, while you are gearing up to file for a refinanced mortgage. Save that car loan until after you have re-financed. 

It's hard to know where interest rates will be 5-10 years from now. Some economists believe that a variety of factors will lead interest rates to remain very low for a long time to come. I'm not so sure of that. There's just enough financial chicanery coming out of Washington today that could make future economic conditions uncertain--and riskier for lenders. This may be a good example of "getting while the getting's good."