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With low interest rates, families could save thousands by refinancing mortgages

Quick Fix Mortgage Refinancing
Posted at 2:13 PM, Feb 16, 2021
and last updated 2021-02-16 14:13:45-05

Interest rates continue to remain low and that's putting the potential for families to save tens of thousands of dollars by refinancing to a 15-year mortgage.

“You know, if you're building equity faster with a 15-year mortgage, that's just kind of sign, hey you want to stay in that home and own it free and clear as soon as possible,” said Holden Lewis, a mortgage expert at NerdWallet.

Lewis says he doesn't see interest rates rising anytime soon. The Federal Reserve wants to keep people borrowing to stimulate the economy.

The savings can be enormous, because not only are you paying down the home faster, but you get the loan at an even lower interest rate.

Take a $200,000 home. At 3% for 30 years, you pay more than $100,000 in interest. The same home at 2.5% for 15 years will save you about $63,000 in interest.

The trade-off is the higher payment, about $500 more a month. But it could be less if you're currently paying mortgage insurance and you can drop that in a refinance.

“And that $500 a month could go toward retirement savings, savings for a rainy day, you know, your child's day care. So, there's a lot of competing things that you have to balance against each other,” said Lewis.

If higher payments seem too risky, you could always pay extra on your current mortgage, but that takes discipline.

With the housing market so hot right now, Lewis sees that as a positive for people who may have had financial hardships and need to sell.

“When people have forbearance for a long time, it gives them time to fix up their homes and list them and sell them, so they don't have to do it in an emergency. They don't have to do it in a fire sale type situation and that will keep house prices from falling,” said Lewis.

Homes are sitting on the market only about 21 days, selling about two weeks earlier than they were a year ago.