As we posted on Facebook last week the average for a 30-year fixed loan fell to 2.98%, the lowest level in almost 50 years of record-keeping by Freddie Mac​. The tumble came as the Federal Reserve​ holds its benchmark rate near zero and buys mortgage bonds as part of its plan to stimulate the economy. The low rates have propped up home prices and helped the housing market hold up better than expected amid the economic fallout from the pandemic.

But whether you should refinance your mortgage depends on a couple of factors — your current interest rate and how long you expect to live in your home before moving. That is because there are always costs involved when you replace one loan with another. They can be high or low depending on the mortgage company.

According to housing experts you might encounter these costs when you refinance:

  • Closing costs: Closing costs amount to 2 percent to 5 percent of the home loan and include application fees, lender fees, attorney fees, escrow deposits and fees, courier fees, homeowners’ association transfer fees, inspection fees, and title insurance.
  • Mortgage points: Sometimes called discount points, mortgage points are optional fees paid to your lender in exchange for a lower interest rate. Each point is equal to 1 percent of the mortgage loan.
  • Prepayment penalties: A prepayment penalty is a fee that some lenders charge when a borrower pays their mortgage loan off early, either through refinancing or overpaying each month. The average prepayment fee is 80 percent of six months of interest.

A typical rule of thumb is that you should refinance your mortgage if you can reduce your interest rate by at least 1 percent. However, smaller savings can be justified in some cases if there are very low closing costs. Secondly, experts say you probably need to stay in the home for at least five years for the savings in interest to offset the cost of refinancing the mortgage.

It is entirely possible those record low rates could go even lower. Mortgage rates are falling because they are directly tied to the yield on the 10-year Treasury bond, which has cratered in the last week. The yield fell to 0.77 percent — a record low — because investors who fear the economic impact of the Coronavirus are selling stocks and buying bonds. Rising demand for bonds means the U.S. Treasury Department does not have to pay as much interest, so yields fall when demand rises.

Mortgage rates this low might lead to a surge in home sales under normal circumstances, but the U.S. housing market continues to suffer from extremely low inventory. There are not enough homes on the market, but a big drop in interest rates might make some homes more affordable. For potential buyers on the edge of entry-level homes or slightly more expensive homes, the lower monthly payments that a lower interest rate provides could make a difference and provide more options.

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