Years ago, the average mortgage interest rate was 4.52%. In the last few years, the interest rates have significantly decreased to 1.7% on average. The current interest rates could benefit your situation if you took a mortgage with an interest rate of 3.7% for a fixed period.
A rule of thumb has always been that refinancing is beneficial when the interest rate decreases by at least 2%. However, many financial advisors at this moment in time recommend refinancing if you can already save 1%. Another approach is to look at how much time it costs to earn back the cost involved to refinance.
A mortgage of €500,000 with a 3.8% interest rate has a monthly interest payment of € 1,583.33. When you have the same loan with an interest rate of, for example, 1.7%, then you reduce the monthly interest payments by € 875. Your new monthly interest payment becomes € 708.33.
Another reason to refinance you can shorten your mortgage term without changing the monthly payments.
If you took an annuity mortgage for 30 years with an interest rate of 3.8%, you could now refinance to an interest rate of 1.7%. If you feel comfortable with the monthly payments, you could shorten the duration by ten years and keep more or less the same monthly payments.
A variable interest rate is the interest rate that fluctuates over time. The fluctuating rate often has lower interest rates; however, periodic changes can result in a higher interest rate in time than a fixed interest rate.
In this case, moving to a fixed-rate mortgage may result in a reduced interest rate. However, switching from a fixed to a variable mortgage might be a wise financial option when interest rates decrease.
If you have doubts about refinance, contact the Mister Mortgage team for financial advice. We help you understand the numbers behind your choice, and we run a calculation and plan a 45-minute call to explain if refinancing makes sense and how much you can save in the long run.
Refinancing could require investing your savings, going through the mortgage application again, paying the fine to the existing mortgage lender, and closing fees; however, the outcome for the long run can save you money.
We invite you to submit documents to our online portal.
We research your situation and possible financial scenarios.
We compare multiple lenders and current interest rates.
We plan a call to explain your fine to the existing mortgage lender, your new monthly payment, closing fees and explain if refinancing can or cannot benefit your financial situation in the long term.
Schedule a free introduction call with our team