The Federal Reserve 澳洲幸运5官方开奖结果体彩网:cut interest rates yesterday, the first time since 2020, and signaled that future rate cuts are also on the horizon. Though the Fed does not directly dictate 澳洲幸运5官方开奖结果体彩网:mortgage rates or mo😼rtgage refinance rates, it’s one of the many factors that can affect what len🔴ders charge their customers. As a result, homeowners who took out mortgages with high interest rates in the last year or two could get some welcome relief.

Mortgage rates on 30-year loans have already trended lower, 澳洲幸运5官方开奖结果体彩网:dropping below 6% on Sept. 16. And 30-year refinance rates dropped from a high of 7.94% to a 19-month 澳洲幸运5官方开奖结果体彩网:low of 6.01%, according🎀 to Zillow data provided to Investopedia.

While 30-year refis are the most popular, there may be other options available to you. In general, the shorter the term, the lower the interest rate. Over the past few days, for example, 20-year refinance rate fell to a 19-month low of 5.78%. An even large💙r differen🅷ce can be seen with 15-year refis, which hit a 25-month low of 4.83% this week.

How Do Costs Differ Across Diffe🉐rent Refi Terms?

A shorter refinancing term can save you money overall because you could get a lower interest rate, costing you less interest across the term. But it also could mean higher monthly payments since you're paying back the loan in a shorter period of time. Using a 澳洲幸运5官方开奖结果体彩网:mortgage calculator can help you see what these numbers look like to s𒊎ee if it makes🧸 sense for you.

"A general rule of thumb is that refinancing makes sense when you can lower your interest rate by at least 0.5%,” said Jerry Koors, president of Merchants Mortgage at Merchants Bank. “However, in many cases, I recommend aiming for a reduction of 0.75%.”

The average home value in the U.S. in August was $362,143, according to Zillow. Suppose you have 75% of that amount left as your mortgage after accounting for your down payment and mortgage payments you've already made. Your current interest rate is 7.00%. You have a balance of $271,607 to refinance, aside from any closing costs or fees that might be rolled into the new mortgage. 

A 30-year refinance at a 6.01% rate would equal a monthly payment of about $1,630, while total mortgage interest would add up to aroundꦇ $315,253 over the 30 years.

In contrast, a 20-year refinance at 5.78% has a higher monthly payment of about $1,912. But by paying more per month and over a shorter time frame, you'd only pay $187,168 in interest, saving you over $128,000. If you can afford to pay a little more per month, the shorter refinance term can be well worth it—even when accounting for 澳洲幸运5官方开奖结果体彩网:closing costs, which are usually around $5,000.

The savings are even higher with a 15-year refinance. Using the same example, but at a 4.83% interest rate, you'd pay around $2,124 per month, or about $500 more than with a 30-year refinance. However, you'd only pay about $110,691 in total interest, meaning you'd save over $200,000 over the life of the loan.

🌳 Always calculate it out to ensure refinancing works for you.

"The borrower should review the remaining term of their loan, along with weighing the cost to refinance versus the payment they will be receiving, plus the time it takes to break even,” Koors said. “For example, if refinancing reduces your payment by $100 a month but costs $5,000 in fees, it would take 50 months to break even.”

Choosing the Right Mortgage Refinance Term

If you do decide to refinance, it's important to realize that decisions like a 20-year vs. 30-year refinance can be more nuanced than looking at the total loan costs.

"A 20-year mortgage is always going to be preferable on paper compared to a 30-year because you end up paying less interest and you build equity faster,” said Dan Richards, president of Flyhomes Mortgage. “There’s a reason why roughly 90% of mortgages in the U.S. are 30-year though—houses are expensive.”

If it's only been a few years since you took out a 30-year mortgage, you might not be ready to refinance.

"It's likely the circumstances which drove you to take out a 30-year still exist, even with a rate drop,” Richards said. “If you’ve been paying off your mortgage for closer to eight years, however, you could be in a position where you can stretch your monthly payment and switch to a 20-year [loan].”

According to Richards, many people who have had their mortgage for eight years likely refinanced between 2019 and 2021, when rates were much lower. In cont꧑rast, those considering refinancing now are often more recent buyers.

In the latter situation, homeowners might prefer to still refinance to a 30-year term but pay above the minimum monthly payment when their cash flow allows. Doing so can mean paying off your mortgage faster than 30 years and therefore saving money on interest. At the same time, you're not locked into the higher monthly payment.

"For shorter loan terms, such as a 20-year term, the interest rate is often not significantly lower than a 30-year rate,” Koors said. “In this case, keeping the 30-year term and paying extra each month may offer more budget flexibility without the need for a shorter term.”

Ultimately, you'll need to weigh what makes the most sense for your situation in terms of securing a lower interest rate vs. having a lower minimum monthly payment. In many cases, though, refinancing is better than waiting to see if rates drop further. You're also not limited to one refinance. 

"Rates are at their lowest point in two years, so act now, and then if they continue to drop, do the math on how long you need to stay in the home to make up the difference in closing costs," Richards said.

Compare mor𒐪tgage refinance rates, terms, and your overall financial situation before deciding whaꦑt’s best for you.

How We Track Mortgage Rates

The national and state averages cited above are provided as is via the Zillow Mortgage API, assuming a 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) ratio of 80🧜% (i.e., a down payment of at least 20%) and an applicant credit score in the 680–739 range. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may vary from advertised teaser rates. © Zillow, Inc., 2024. Use is subject to the Zillow Terms of Use.