Millennials are hurrying to refinance their mortgages — here's why
Millennials are increasingly choosing to refinance their mortgages but low-interest rates present financial opportunities for people of all age groups. (iStock)
Policymakers at the Federal Reserve aim to support the country’s economic recovery by keeping interest rates at the current rate range of 1.5% to 1.75%. As a result, national mortgage refinancing rates continue to hover at record lows, and opportunists – particularly millennials – are taking notice.
A recent study reports the percentage of loans closed by millennials in November 2020 climbed to 45%, marking a 14% year-over-year increase. The month saw an increase in refinancing activity among millennials just as the interest rate on 30-year mortgage loans fell to 2.97%, continuing an eight-month downward trend.
The correlation between low-interest rates and a boom in mortgage loan refi’s among millennials comes as no surprise to Joe Tyrell, president, ICE Mortgage Technology. "With interest rates reaching historic lows, millennials have refinanced to take advantage of a significant savings opportunity they will see play out over the long-term," he said.
What are good reasons to refinance your mortgage?
Now is a good time for millennials – and all age groups of homeowners – to evaluate their personal finance situation to determine if refinancing could be beneficial. Before making any major financial decisions, do your due diligence and explore your mortgage refinance options by visiting Credible to compare rates and lenders.
If you're considering refinancing — whether you're hoping to lower your monthly mortgage payments, find a better mortgage refinance rate, or need extra cash to make home improvements, you'll always want to run through a checklist beforehand to make sure it's a good time. Here are three good reasons to refinance your home loan:
- Refinance rates are at record lows
- Refinancing could reduce interest, shorten term of loan
- You could end up saving money
1. Refinance rates are at record lows
Here are the mortgage rates as of February 11, according to Credible, Inc. NMLS Number 1681276:
- 30-year fixed mortgage: 2.625%
- 20-year fixed mortgage: 2.375%
- 15-year fixed mortgage: 2.00%
"Record-low interest rates means that for a lot of people refinancing makes sense right now," said Brandon Renfro, a finance professor at East Texas Baptist University. "It's not uncommon for someone to be able to drop their mortgage by a full percent or more in the current environment, and that can make a noticeable difference."
Explore all your mortgage refinance options by visiting Credible to compare rates and lenders. There you can compare prequalified rates from multiple lenders in just three minutes.
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2. Refinancing could reduce interest, shorten term of loan
A large portion of your monthly mortgage payment goes toward paying the interest on the loan, especially during the first 10 years. The higher your interest rate, the larger your monthly payment will be and the more you’ll pay in interest.
By refinancing your mortgage and securing a lower interest rate, you’ll pay less in interest. Over the course of the loan, you could potentially save thousands of dollars.
Refinancing also presents an opportunity to reduce the overall term of your loan. For example, if you have a 30-year mortgage, you may be able to qualify for a 20-year mortgage with roughly the same payment.
If you're interested in changing your loan term, then head to Credible to shop for refinance lenders.
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3. You could end up saving money
One of the main benefits of refinancing is it frees up cash to put toward your savings, college tuition, home improvements, or another endeavor.
Refinancing also provides an opportunity to consolidate debt in a more affordable way since mortgage rates are generally much lower than credit cards, student loans, and other types of loans. To that end, refinancing is a way to pay off high-interest debt and convert it into a lower interest rate.
"With how low current 30-year rates are, we are advising many of our clients who are refinancing into a 30-year loan to take the interest savings from their refinance and either invest back into their mortgage to reduce their overall principal balance – without being locked into the 15-year payment – or invest into other avenues," said Vanessa Accra, a team sales manager with Caliber Home Loans. "The interest savings they are receiving on a monthly basis by refinancing into a 30-year mortgage can also be used to pay off existing debts."
To make sure the numbers make sense for you, visit an online marketplace like Credible to view refinance rates and get cash out to pay off high-interest debt.
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Is it worth it to refinance your mortgage?
Mortgage interest rates are at record lows, but they will likely rise again once the economy begins to regain its legs. If you’re considering refinancing your mortgage, there may be no better time than now.
Regardless of whether you’re a millennial or belong to another age group, it’s always a good idea to run the numbers before agreeing on a loan. Dan Green, CEO of mortgage lender Homebuyer, offers this advice: "If you can lower your interest rate or reduce your term without incurring big costs, do the refinance. A lot of homeowners get mentally stuck on this. Don’t. When you can recoup your costs in less than a year, you go for it."
Deciding whether you should refinance will depend on your unique financial situation. Visit Credible to get in touch with experienced loan officers who can answer your questions and offer personalized advice.