Should you refinance your mortgage now?

Mortgage refinancing rates in recent weeks have been dropping at a pace we haven’t seen in quite a long time.

As of this writing, the current average 30-year fixed mortgage refinance rate is down to 3.70%, according to Zillow. That’s down more than a full percentage point from the nearly 5% rates we were seeing in late 2018:

Clark Howard’s simple rule for when to refinance your mortgage

So, if the interest rate you’re paying on your mortgage is significantly higher than the rates you’re seeing now, should you refinance?

Money expert Clark Howard says yes.

“One week recently, refi applications were 60% higher than the previous week,” Clark says. “That’s no accident. A lot of people are recognizing that they can save a lot of money in the long term by refinancing now.”

So how do you know when you should refinance?

Here’s what Clark says:

“If you can make back the cost of the refinance in 30 months or less, you should do it. It just makes financial sense. That’s the trigger.”

When you figure out what you’re going to have to pay to do the refi (there are almost always costs involved) versus what you’d be saving on interest per month, you can figure out the break-even point.

“So, you should be sure you’re going to be staying in the house for at least 30 months,” Clark says, “but most people end up staying in a house longer than they think they’re going to.”

Advertisement

While the 30 month rule is Clark’s general gauge, there are calculators available that will show you exactly what your break even point will be and how much money you can save over the life of your loan:

As you punch your particular numbers into the calculator, you might see what your monthly payment would be if you refinanced into a 15 year mortgage. Rates for those are even lower (currently averaging 3.18%, according to Bankrate), so if you can afford what is likely to be an increase in your monthly payment, you pay of your loan quicker and potentially save even more money over the long haul!

“The huge advantage with a refi is going into a 15 year loan,” Clark says. “If you’ve been in your loan for a while, going into a 15 is the grand slam.”

More stories you might enjoy from Clark.com:

USAA Rate Advantage Visa Platinum card review

Review Summary: Credit cards can be tough to manage for some military families. Between deployments, moves to a new base and other common military challenges, credit cards might slip to back of mind quickly.

With the USAA Rate Advantage Visa Platinum card, you won’t have much to worry about.

As a Visa Platinum cardholder, you get plenty of value in return. As a military member or military family, you know USAA has your best interests in mind.

If you are in the military or a veteran, you should seriously consider this low-cost card.

Pros

Cons

• No annual fee or foreign transaction fees
• Lowest interest rate available from USAA
• No penalty APR

• Balance transfer and cash advance fees up to 3%
• No cash back or travel rewards

How the USAA Rate Advantage Visa Platinum credit card works

Credit card overview

The USAA Rate Advantage Visa Platinum card is a great low-cost card designed primarily for military and veteran families.

It offers the lowest interest rates you can get from a USAA credit card with no annual fee and no foreign transaction fees.

The card is filled with useful benefits, including a special lower Deployment/PCS (Permanent Change of Station) interest rates and SCRA (Servicemembers Civil Relief Act) interest rates exclusively designed for the military.

With no foreign transaction fees and a security chip, you know you can use the card wherever your service takes you and your family can swipe and dip the card with ease on- or off-base.

There is no miles, points, or cash back benefit reward program for this card. It is all about keeping costs and fees low for military members and veterans like you.

Ask Clark: What should you do when your term life insurance rates skyrocket?

When consumers have financial problems in their lives, they turn to a trusted source for information like Clark.com.

Such was the case with this Twitter user who wanted advice on how to handle a sudden spike in his term life insurance premium.

@ClarkHoward I have a term life insurance policy and am 72 years old. The premium went from $142/mo to $675/mo and I just received notice that it is going to $1200/mo in Sept. What other options are available?

— Larry Winn (@LrwinWinn) July 24, 2018

Term life insurance premium too high? Consider this

If you’re heard Clark talk about life insurance, you know that he recommends level term life insurance. The beauty of level term life insurance is that you pay one fixed rate for the entire life (aka the term) of the policy. And the cost never goes up!

But level term life is a relatively new development in the insurance world. If you bought your policy years ago, you might be in a term life policy that’s not “guaranteed level.”

Understanding annual renewable term vs. guaranteed level

There’s something in the world of insurance called annual renewable term (ART). An ART policy covers you for one year. At the end of the year, you can renew the ART policy for another 365 days — usually at a slightly higher premium.

The thing about ART is that it tends to offer a lower premium during the first couple years than you would get with a guaranteed level policy. So it’s easy to look at quotes for the two different flavors of term life policies and think you’re making the smart choice by going with an ART.

By the way, if you have access to a group life insurance policy through your employer, ART is usually what you’re offered. You can think of it almost like buying a homeowners insurance policy a year at a time — except that it’s on your life, not your home.

But here’s the thing: Because ART policies will become more expensive as time goes on, they’re only recommended when you have a short-term need for life insurance. Otherwise, you want to lock in with a guaranteed level term policy, as Clark advises.

Wondering about the specifics of when an ART might be the right choice in your life?

Insurance site Haven gives the example of a smoker applying for life insurance who wants to quit but isn’t quite there yet. This hypothetical customer could probably get a lower rate with an ART policy for the first year versus a level-term policy for which they would underwrite and get locked in with higher rates as a tobacco user.

Advertisement

If they opt for the ART, they could spend that first year working on kicking the habit. Once our smoker has quit for good, he or she could likely get a better deal on a guaranteed level policy as a non-smoker instead of continuing on as an ART customer.

So it appears that the Twitter user who wrote into Clark above likely has term life that is not guaranteed level, but rather annual renewable term.

Here’s another factor driving up his rate: The poster notes that his age is 72. Because he’s above 70, the actuarial tables insurers use to set rate are working against him big-time with an ART policy.

Think about it: It stands to reason there’s a greater rate of mortality after age 70 than, say, before age 30 or 40. And a higher cost follows when you have higher risk. So that also explains the steady uptick in price over the last term from $142/month to $675/month, and now the enormous 77% jump to $1200/month that he’s facing.

Now that we know the likely reasons why the poster’s policy is going up, what should he do about it?

Here are Clark’s recommendations

When we spoke with Clark Howard about the poster’s situation, the money expert had a couple of thoughts:

Based on what the poster told us, Clark thinks the man was probably in a guaranteed-level term policy that ran through age 70. Then once he hit 70, it came to an end and switched to annual renewable term from that point on.

But there’s a bigger question here: Is there still an insurable need for this insurance?

The answer is likely not. You get insurance for replacement of income to support your dependents in the event of your death. At 72, it’s less likely there are dependents to support to begin with. So that may negate the need for a policy in the first place and he can stop paying on it.

However, let’s play devil’s advocate and say there is an ongoing insurable need even at age 72. In that case, the best solution would be to shop the marketplace. There may be another insurer who offers a better deal on ART.

Advertisement

Shopping is easy on the internet. You can comparison shop for new quotes at any of a number of sites below, which we’ve listed alphabetically:

More insurance stories on Clark.com