Mark and Jan Sass, 55-year-olds who live in Cincinnati, Ohio, refinanced their home last week to lock in lower rates, Reuters reported. They switched from a 20-year fixed-rate loan of 4.875%, with 12 years remaining, to 10-year mortgage with a 3.5% rate.
"The opportunity to look 10 years out and know that – unless things change – we won't have a mortgage when we retire looked like a smart decision," Sass told the news agency.
A Refi surge
They aren't alone. U.S. banks have seen a recent surge in loan applications that's almost entirely due to refinancing, Greg McBride, senior financial analyst at Bankrate.com, told DailyFinance.
"Over the past month, refinance application volume has increased by 63%," Mike Fratantoni, MBA's vice president of research and economics, said in a statement. "Refinance applications for jumbo loans increased by almost 75% relative to last week. Despite these low mortgage rates, applications for home purchase have remained little changed through the summer."
According to a Bankrate.com survey released Thursday, the average 15-year fixed rate for a mortgage reset is 3.61%, while 30-year fixed-rate mortgages average out at slightly less than 4.5%. The jumbo 30-year fixed rate set a new record of 5.02%, the Bankrate.com survey found.
Should You Refi?
For example, homeowners in their early 50s who have lived in their homes for a number of years and have positive cash flow have little reason to stretch out a longer-term loan, says McBride. Refinancing into a shorter-term now could put them on track to pay off their house by retirement time.
Alternatively, homeowners who are in their 30s and starting a family might be looking at refinancing into another 30-year loan as a way to create more breathing room in the monthly family budget and to enable them to sock more money away into retirement or college savings. Mortgage calculators can help homeowners determine where refinancing is a good option.
For a back-of-the-envelope calculation: Divide how much will it cost you by how much you will save. That will tell you break-even point. If it will save you the amount of your mortgage payments for the two- to three-year range, says McBride, then it's generally worthwhile to consider refinancing.
See more stories on refinancing at AOL Real Estate.