Should I refinance my mortgage rate?
Hey there! I’m Aren, and today I will be talking about
Why it is a good idea to refinance your mortgage right now
Specifically, What mortgage rates were historically?
Why the 30 year fixed mortgage is the best type right now?
And what the true cost of a mortgage is after tax benefits?
Whether now is a good time to refinance?
Which bank I’ve seen that is giving out the lowest rates?
What happens when you actually apply?
But before we start
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In addition, this video is strictly for informational purposes only,
you should do your own research and consult with a financial professional.
And with that out of the way, lets discuss.
Using the data from Saint Louis Fed that goes all the way back to 1971.
The long term average of 30 year mortgage rates are at ~8%
With a range from a peak of 18.6% in 1981, to a low of 3.3% in 2020.
Right now, Mortgage Rates are at the lowest point than anytime in recorded history.
Since rates are so low, you’d want to borrow it for as long as possible.
But it is always important to be mindful of the fees.
Banks usually give you the option between a 30 year and a 15 year.
The difference between the 2 options is that you pay a higher by about 50 basis points or 0.5%.
So if 30 year rates are at 3.3% then 15 year rates are only at 2.8%.
Personally, I prefer to borrow at the higher 30-year rates
because I feel I can earn more than that by investing the money instead.
In addition, it lowers my monthly payment as it is spread out at a longer period of time.
It is also important to note, the tax benefits.
You can usually calculate this by taking the APR (which is the rate + any closing costs)
and multiplying it by (1-your marginal rate).
So for a 3.3% APR, with a 33% marginal Federal and state tax.
It would be 3.3*.66 or your true cost is only 2.178% after tax.
For the 15 year mortgage at 2.8% pre tax, your true cost would be 1.85% after tax.
Having said all this, would it be a good idea to refinance?
Most likely, but it depends on what your rates are.
If your mortgage rate is at least 50 basis points higher
or 0.5% higher than the mortgage market APR then it makes sense to look into refinancing.
For example, if your current rate is at 4%, but the market rate is 3%, then you should probably refinance.
So where is the best place to refinance?
As of 4-11-2020, the bank giving the lowest rates right now is Chase at 3.30% APR.
I placed the mortgage refinance links for the 4 largest banks, and 2 credit unions in the description
Please use those link to recheck what rates are, as they change by the day.
You want to focus specifically on who has the lowest APR for the 30 year Fixed Mortgages.
When you actually apply, the rates may change depending on your many factors.
To get the lowest advertised rates, I noticed that having a credit score of 760+ ,
a Loan To Value or LTV of 80% for a house or 75% for a condo is ideal,
a 75% LTV, means that if your house is appraised at 1 million. Then you would borrow $750,000.
and a mortgage loan that is less than 3x your annual income.
So for a $150,000 income, your mortgage should not exceed $450,000.
If you did not get your desired rate, Just tell them to let you know when rates drop by 15 basis points.
So if they quote me at 3.35%, I tell them to just let me know when it drops to 3.20% APR.
Also typical closing costs can vary from 1% to 5% of your mortgage balance.
In addition, they will also try to sell you points, which can be a good idea.
But always start with 0 points so it is easier to compare them.
You’ll take the cost of the points and divide it by your how much you save in your monthly payments
So if you bought 1 point for $4,000 but only save $40 per month when compared to no points,
then it will take you 100 months to break even, or 8 years.
Lastly, try to avoid getting lender credits, if it raises your APR by a significant amount.
Anyways, I hope you learned a great deal for free!
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30 year Mortgage rates history:
Bank refinance rates: