Refinancing can be smart for mortgages above 5 percent

Although many homeowners have refinanced during the last five years of historically low mortgage rates, you’re not alone if you don’t have your own rock-bottom rate. Maybe your credit score prevented you from getting a top rate at the time, or perhaps you opted for an adjustable-rate mortgage that has since seen its rate rise. Or maybe refinancing seemed so daunting you just never got around to it.

Whatever the reason, if your APY is above 5 percent, you’re a good candidate to investigate refinancing. That threshold comes from two factors: a national average for 30-year fixed mortgages that’s currently hovering around 4 percent, and the rule of thumb that refinancing is often worth it when you can lower your rate by 1 percent or more.

Drop your rate from 5 percent to 4 percent on a $150,000 mortgage balance and you’ll save about $90 a month. But beyond the lower payment, you’ll also be putting more towards principal every month because you’ll be spending less on interest. That means you’ll build equity in your home more quickly.

Of course, some research and shopping around will be required. As the name implies, the national average is a middle number of all the mortgage rates currently on offer across the country. So while some lenders are charging more, you can find others charging less.

Obviously, the lower the rate you can lock in, the better, assuming the associated costs are reasonable. Fees vary widely, so shopping for your best option means comparing not just the rate for each mortgage, but also that lender’s estimated refinancing costs.

While some refinancing options carry a hefty expense that won’t make economic sense for you, others will be affordable enough that you can easily recoup the expense with savings from your new, lower interest rate.