The 25-year fixed rate refinance mortgage is a great option for homeowners who want to refinance a 30-year fixed or adjustable loan without completely restarting their payment schedule.
25-year mortgage rates tend to be lower than 30-year mortgage rates which means you can save money, save time by paying your home off sooner, and save the fear of having your interest rate adjust upwards like with an adjustable rate mortgage.
25 year mortgage refinance rates
Some experts, like the Mortgage Bankers Association and National Association of Realtors warn refinance rates might begin to rise sooner rather than later.
The MBA predicts 30-year fixed-rate mortgages will rise gradually over 2017, averaging 4.7 percent in the fourth quarter of 2017. Similarly, the NAR anticipates the 30-year fixed to be around 4.6 percent at the end of 2017. So, while 25-yr mortgage rates are at an all-time low, that might not be the case in the coming years. Watching the forecast to compare your current interest rate with how refinancing rates look presently, and in the near future is a good way to determine your refinancing timeline.
Low fixed-rates mean savings and security in the future. Speak with your bank or home loan specialist to see what you can do to switch to a 25-year fixed rate mortgage.
The math on a 25 year mortgage compared to a 30 year
If the 25-year fixed rate mortgage offers a lower interest rate than a 30-year fixed, what will that mean for overall savings?
Let’s assume you need to borrow $160,000 and you’ve put down 20 percent. The loan you secured has a 7 percent interest rate. With a 30-year fixed rate mortgage, your monthly payment would be $1,064.48, and over the life of the loan, you will pay $223,217 in interest — which as you can see is double the original loan,
Let’s take the same example. Except with using a 25-year fixed rate mortgage with a 6.5 percent interest rate. The monthly payments are $1,080.33, not that much more that a monthly payment for a 30-year fixed mortgage. Over the life of your loan you will pay $164,100 in total interest, a significant difference from the 30-year loan.
In this scenario, you would pay 26 percent less interest with a 25-year mortgage, and your monthly payment would only be slightly higher.
What to look for in a 25 year mortgage
25-year mortgages are a nice compromise for someone who is interested in building equity on their home quickly, but not financially able to commit to a more extreme payments attached to a 15-year fixed rate mortgage.
Before looking for a 25-year mortgage, make sure it is the right loan for you. While its rates are low, there are many products on the market. Short-term adjustable mortgages, for example, tend to offer low rates as well. Here are three key things to look for in a 25-year mortgage:
- Protection against rising rates. Fixed-rate mortgages, as opposed to adjustable rate mortgages, will not rise and fall with the market. A fixed-rate allows homeowners to budget easily.
- No prepayment penalty. If your financial situation changes, and you’re able to start making higher than minimum payments on your loan, you should be able to do so without getting a penalty.
- Lower rates than a similar 30-year mortgage. You’ll need to do a little math while comparing which refinancing product is best for you. While 25-year mortgages are tempting for the lower interest, every scenario is different, they might not be less expensive than a comparable 30-year product over the life of the loan. Double and triple check the product you move forward with is the most financially sound.
Shop around to find your best match. You might also consider using a mortgage broker — or a middleman between you and potential lenders. Brokers work with numerous banks to match borrowers with the best mortgage programs for their needs. Picking the proper mortgage broker can save you money and time.
Refinancing your family home with 25-year mortgage rates can save you money and time (Photo/Pixabay)
The disadvantages of 25 year mortgage interest rates
If your financial situation allows you to comfortably tackle a 20 or 15-year mortgage, you can accelerate the benefits of refinancing- after all, your mortgage will be paid off faster.
One drawback to a 25-year fixed rate mortgage, as compared to a 30-year fixed rate mortgage, is a slightly higher monthly payment. The difference may be negligible depending on your lender, but it’s something to keep in mind while determining the loan length on your refinance, especially if you feel like you’re overextending yourself with a 25-year mortgage.
If you plan to flip your home soon, a 25-year mortgage might not be the best product for you. A shorter-term loan like an adjustable rate mortgage might make more sense for this situation.
The best way to gauge which refinance product is best for you is through the use of a mortgage calculator. You can test out several loan lengths and interest rates against your current situation to see how a new loan will impact your monthly payments, and lifetime cost of your loan.
Finally, 15, 20 and 30-year fixed rate mortgages are more common for refinancing than 20-year fixed rates. This means they might be more difficult to track down. You may have to put a little extra legwork into your research to secure a strong 25-year refinance rate.
Fannie Mae, Freddie Mac, and 25 year mortgage rates
The best 25-year refinance rates are offered by lenders that are underwritten by the government-sponsored agencies (GSEs) — Fannie Mae and Freddie Mac. Fannie and Freddie loans carry the lowest rates and best terms. This happens because Fannie and Freddie do a better job of finding investors to provide money for your mortgage than anyone else. You might be best served to start your research with these lenders.
Loan-to-value ratios and refinancing
To find the LTV ratio, calculate the total mortgage lien divided by the value of the property (per an appraisal), then multiplying by 100. So, if a borrower has a $87,500 mortgage lien on a home appraised at $100,000, the LTV ratio would be 87.50 percent (87,500/100,000)x100.
If you are in a “normal” situation where you owe less than 80 percent of your home’s balance, finding a 25-year refinance should be relatively simple.
On the other hand, if you are like the millions of Americans who either owe more than 80 percent of their home’s values or who are “underwater,” owing more than your home’s value, you can still get a 25-year refinance loan, but your options will be limited.
One place to look in this situation. Is the revised Home Affordable Refinance Program, called HARP 2.0. This program was released in early 2012 and offers a plan where underwater borrowers with Fannie or Freddie loans can refinance to a 25-year fixed rate mortgage without having to get an appraisal. Often, borrowers can find lower interest rates through HARP, too.
Refinancing to a 25-year loan with no closing costs
One of the pitfalls of refinancing is that you can end up owing more on your refi than on your existing mortgage. This does not need to happen, though. Look for a lender who will give you a “no closing cost” loan. This is different from a “no cash at closing” mortgage.
With a “no cash at closing” mortgage, the lender adds all of the fees on to your balance and, although you do not pay anything at closing and usually get to skip a mortgage payment, you end up owing more money.
With a “no closing cost” loan, the lender absorbs all of the closing costs and pays them for you. In exchange for this, they charge you a slightly higher interest rate. While the cost for this can vary, your rate on a no closing cost loan will usually be 0.125 to 0.25 percent higher. Paying this slight bit of additional interest has a very small impact on your monthly payment, and it is tax deductible. This strategy could save you thousands of dollars in upfront cost. You might even get to skip a mortgage payment.
If you want to refinance to take advantage of current rates, look at a 25-year fixed rate mortgage refinance. It carries almost the same payment as a 30-year loan, but will go away five years sooner. You can save money every month and be five years closer to being debt-free.