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Is mortgage refinancing right for you?

Refinancing your mortgage
Is refinancing your mortgage right for you? 03:32

Low mortgage rates have helped fuel the competitive housing market, but for some homeowners, they offer an opportunity to save money through mortgage refinancing. For those on the fence about refinancing, there are several factors to consider. 

"If homeowners are in a situation where they have good credit and they're currently paying a rate that's 3.5% or above, I strongly urge looking into this refinancing because there are rates that are well below 3%," chief financial analyst Greg McBride told CBSN Thursday. He said their consumer financial company has seen homeowners lock in 30-year fixed rates at about 2.75% in recent days. "So, you know, there's substantial savings there. It's a way to trim those payments — $200, $300 bucks a month."

Mortgage rates have nudged higher this year from record lows during the height of the coronavirus pandemic in 2020. But interest rates continue to remain low with the national average 30-year fixed mortgage rate at 3.28% and the average 30-year refinance rate at 3.29% as of Thursday, according to Bankrate. 

Look for "the best deal altogether"

As a general rule of thumb, if interest rates are below your original loan and you are able to lower your rate by at least half a percentage point, refinancing could be worth considering. Some homeowners might also want to refinance in order to switch to a shorter-term loan, from a 30-year to 15-year mortgage, where they may be able to pay off the balance faster with less total interest. 

But be mindful of added costs associated with refinancing, including origination and appraisal fees, as well as title insurance or taxes. McBride recommends getting quotes from three different lenders and to look for "the best deal altogether" which includes accounting for fees — not just the best rate. 

Another way consumers might be able to lower their interest rates, whether they are purchasing a home or refinancing, are mortgage points or "discount points." 

"It's just a way of buying down your interest rates. And one point is equal to 1% of the loan amount, so if you're borrowing $300,000, one point is going to cost you $3,000," McBride explained. "That's effectively prepaid interest. That one point may buy your interest rate down by a quarter of a percentage point. Over time, that savings really adds up." 

Time is key, he added.

"The break-equal point on points — usually about six years. So, for people that are strapped for cash, I'm not a big fan of it, especially with rates as low as they are," McBride said. 

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