2012 saw the average rate on a 30-year fixed mortgage fall to historic lows just below 3.5 percent. While some homeowners might be holding off from refinancing until rates drop even further, these low rates won't last forever. Here's why you should refinance your mortgage now.
Obsessing could hinder you. While you might be hoping that interest rates drop lower than they already have, waiting too long could ultimately mean you miss out completely as rates are likely to rise eventually (the Mortgage Bankers Association expects 2012 to end with rates above 4 percent). And remember that an even lower interest rate may not make much of a difference in the final monthly payment. For example, at 3.64 percent a $200,000 30-year fixed-rate mortgage would be a payment of $913; at 3.5 percent, the payment only drops by $15 a month to $898.
You could pay off your loan faster. Many homeowners refinance to save money on their monthly payments. However, if you continue to make the same payment as before the refinance, you'll pay down your loan faster and save thousands in interest fees.
Consider reducing the mortgage term. You could pay the same monthly payment for a 20-year loan instead of the 30-year mortgage you currently have. Shorter terms mean less interest paid throughout the life of the loan.
Get rid of the ARM. Even though you may sacrifice a lower payment, it'll be worth it to change your adjustable rate mortgage into a fixed-rate mortgage. You'll have a more predictable future as you won't wonder if or when your payments will increase significantly.
Drop private mortgage insurance (PMI). Homebuyers who don't have the 20-percent down payment that many lenders require often end up with PMI, which is an extra cost to the monthly payments. Refinancing may allow homeowners to ditch their PMI and, thus, save even more money every month.