Is It The Right Time To Refinance Your Mortgage?
The Mortgage refinance business has been nothing but crickets for the last 2+ years as mortgage rates have been climbing steadily since January 2022. We haven’t seen rates above 7% in nearly 20 years, but that’s the environment our country has been in, since we’ve been tackling skyrocketing inflation. By increasing the cost to borrow, the Federal Reserve has tried to slow the economy without bringing it to a screeching halt.
As recently as August 2024, unemployment numbers are slowly rising and consumer spending has also pulled back. The stock market has seen more swings and corrections and the Fed is looking at making some monetary changes. When the Fed reduces interest rates it doesn’t have a direct correlation to mortgage rates, since those are tied to the 10-Year Treasury. Yet still, mortgage rates have been dropping and are at their lowest rate in 2024.
Family, friends and clients have been asking whether it’s the right time to refinance, or should we wait for a clearer sign of rate reductions. The question requires some additional information. I always ask two questions.
Those two questions help to clarify the value in refinancing your mortgage. In my opinion, if your mortgage balance is below $750K, and the new interest rate is at least 1% below your current rate, and you intended upon being in the home for at least another 5 years, than it’s definitely worth the time and potential expense to refinance.
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If your mortgage balance is higher than that, an even smaller reduction in interest rate can have a significant effect on your monthly payment.
And how much will you save monthly?? There are numerous refinance calculators online that will calculate your before and after payment to help you make a decision. I also recommend calling several mortgage lenders to compare rates to get the best deal. A mortgage refinance is very different from a home loan purchase. Many of the documents will be the same, but the process will be simpler and more streamlined. You’ll likely even get to signed your closing documents in the comfort of your own home.
The final question I’ve heard is…are rates going to drop even further?? It’s anyone’s guess on how the economy is going to move during the end of an election year. The economy has been incredibly resilient the last several years, continuing to grow and expand despite stubborn inflationary increases in everything from food, to clothing to travel.
What I would recommend is, if you are in an adjustable rate mortgage and the new lower rates are more attractive, then I would make that change. Locking in a fixed rate is far more advantageous than risking your future on a home you may not be able to afford if rates adjust upward.
Your housing expense is likely your largest bill from month to month. Refinancing your mortgage can oftentimes save you thousands, but only if you do your homework and find a competitive mortgage, attractive terms and pay minimal closing costs. Do your homework and reach out to me at (206) 643-8845 if you have any questions. If you’re buying a home in Puyallup, Tacoma or Gig Harbor, do not hesitate giving me a call or text.