Mortgage Rates Are Down, Time To Refinance?

Susan Powers |

Mortgage rates are the lowest they have been since 2016 and applications to refinance are up.  The national average for a 30 year fixed mortgage has fallen to 3.6% as of August 14, 2019, down almost 1% from the average rate of 4.54% in 2018.  A good rule of thumb – refinancing makes sense if rates are at least ½% to 1% lower than your current rate.  If your current rate is more than 4.375%, and it likely is if you purchased your house in the last 3 years, you may be a prime candidate to benefit from refinancing.

A new consideration in the refinancing decision that many aren’t aware of – are you still able to benefit by getting a tax deduction for mortgage interest?  I’d encourage you to pull out your 2018 tax return.  If you paid someone to prepare it for you, you should have a 2017 vs. 2018 summary comparison that illustrates the impact of the tax reform act. Are you now taking only the ‘standard deduction’ of $24,000 for a married couple filing jointly?  Is so the result is, net of income taxes, your mortgage interest now costs you more.  For example, if you previously paid and deducted $10,000 in interest and are in a 25% marginal tax bracket, you saved $2,500 in income tax ($10,000 x 25%) for a net of tax cost of only $7,500 ($10,000 - $2,500).  Without a tax deduction, your cost is the full amount, $10,000.

In addition to understanding the new tax rules, there are several decisions in deciding to refinance your home including:  the length of time you plan to live there, the total closing costs and the resulting cost savings.  The ability to eliminate private mortgage insurance (PMI) is another important consideration.

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Take a scenario where the homeowner saves $100 on the monthly mortgage payment but incurs a cost of $2,400 in loan closing costs.  It takes 2 years to recover your costs ($2,400 / $100 = 24 months or 2 years).  If you plan to stay in the home for more than 2 years, refinancing would make sense. 

A refinance that will remove your private mortgage insurance, or PMI, may be worth doing for that reason alone.  If you currently pay PMI, have at least 20% equity based on current market value, and your current lender will not remove it, you should consider refinancing.


  • Do you still get a tax deduction for your mortgage interest?  With the new tax laws in 2018, most people no longer get the deduction.
  • Make sure you plan to stay in the home long enough to recoup the costs of refinancing.
  • Rule of Thumb – refinancing makes sense if you can lower your mortgage interest rate by ½% to 1%.
  • Getting rid of private mortgage insurance, or PMI, is a good reason to get a new mortgage.

Give us a call to discuss how the considerations above apply to your specific situation.  Saving, planning and investing do not have to be intimidating.  Let us help.