Mortgage rates have been creeping up. Freddie Mac announced in January that the average went above 3.5 percent for the first time since September 2012. But rates are still hovering at near-record lows. If you've been thinking about refinancing, it's not too late.
Meet five homeowners from our Yahoo! Contributor Network who refinanced at rock-bottom mortgage rates. Find out how they did it and what impact it had on their lives.
Home location: Ohio
Original rate: 4.875 percent
Refi rate: 3.44 percent
Monthly savings: $215
How: Made extra payments to create equity
John and his wife, Gina, purchased their home in 2010. Their impetus for refinancing in 2012? Discovering that they were expecting their first child (due Christmas Eve). In March 2012, they started running the numbers to determine if Gina could stay home with their baby, but they were always just shy of affording to become a single-income family. Refinancing was the solution.
John explained: "We were well short of having the 20 percent in equity necessary to refinance without needing private mortgage insurance, so we began diverting extra income and some of our savings to additional principal payments. Our hope was to refinance our home by November."
They missed their target by just one month. In early December, they refinanced for a 30-year fixed-rate mortgage at 3.44 percent for a monthly savings of about $215; this modest monthly savings combined with some minor lifestyle changes meant Gina could stay home.
Home location: Texas
Original rate: 4.86 percent
Refi rate: 3.5 percent
Monthly savings: $116 (+ $315 a year in lower property taxes)
How: Get approved and wait to lock at the rate you want
Shannon and her husband hadn't given much thought to refinancing. They had what they thought was a good rate and didn't see a reason to "mess with a good thing." Then one day Shannon started crunching numbers. She realized they could save almost $100 every month. She contacted a mortgage banker. It didn't take long to find out she was approved for a 30-year fixed-rate mortgage at 3.65 percent. But having watched the trending decline of rates, she decided to wait for something even lower; she told the banker to lock at 3.5 percent or lower. When he called to say they got the rate, Shannon was pleased to find out they'd be saving $116 a month. An unexpected bonus from refinancing: The new appraisal resulted in lowered property taxes.
Their annual savings from refinancing: $1,710. According to Shannon, "We divided the $315 property tax savings and deposited it into the section 529 college plans we have set up for our children's education," she explained. "With three children lined up like airplanes on a runway, one taking off for college after the other, every little bit helps. We have the monthly mortgage savings of $116 automatically transferred to the college funds at the beginning of every month so we never miss it."
Home location: New Mexico
Original rate: 8.25 percent
Refi rate: 2.75 percent
Savings: Est. $175,000 in interest
How: Do research and shop around for the best rate
Rochelle and her husband purchased their home in 2000. They refinanced in 2002 and then again in 2010. They didn't plan to refinance again, but with such low rates available, they decided to refinance a third time in September 2012.
"It took a lot of time and research to find the best deal out there," Rochelle wrote. "I kept calling around until I found the rate I wanted."
They were able to refinance for a 15-year mortgage at 2.75 percent. Rochelle estimates that refinancing will ultimately save them about $175,000 in interest. And they might refinance again if rates continue to fall: "Who knows, maybe rates will go down even further and we'll refinance again with a 10-year mortgage?"
Home location: New York
Original rate: 7.1 percent
Refi rate: 3.2 percent
Monthly savings: $300+
How: Maintain a high credit score
Nan purchased a farmette near the Finger Lakes in 2001. It was in desperate need of renovation. Built during World War II, the builder saved money by using a lot of recycled materials. The rooms were tiny and cramped, including a 22-inch-wide and 12-foot-long passageway to the only bathroom. About a third of the money she took out with the original mortgage was spent on renovation. When a friend mentioned in early 2012 that she was refinancing, Nan decided to explore rates herself.
"Loan officers love people like me. I pay bills on time and pay my credit card balance off each month," according to Nan. "All of this equates to an excellent credit rating, which the mortgage officer checked. The big three credit reporting companies gave me scores of 799, 804, and 812."
Nan refinanced for a 15-year mortgage at 3.2 percent. Rather than fritter away that $300 each month, she puts most of it toward the mortgage with the goal of becoming mortgage-free in 12 years.
Home location: California
Original rate: 5.5 percent
Refi rate: 2.625 percent
Monthly savings: $415
How: Significant home improvements to build equity
Ron and his wife purchased their home in 1998 with a 30-year fixed-rate mortgage at 5.5 percent. The monthly payment came to $1,030. In 2010, they secured a 20-year home equity loan at 5 percent in the amount of $200,000. With help from a contractor, they did extensive renovations on their home, adding a new driveway, patio, two-car garage, workroom, and family room. Despite a struggling housing market in California, they had greatly increased the value of their home.
Ron now had two monthly payments: $1,320 for the home equity loan and $1,030 for the mortgage.
They refinanced in November, combining the original mortgage and the home equity loan into one 15-year mortgage at a 2.625 rate for a new monthly payment of $1,935.
"I haven't decided yet what I'll do with my [$415 monthly] savings," Ron explained. "Las Vegas is four hours away and I might buy another rental property there; though, a slightly used Corvette would be nice, too."