Low Rates Aren’t the Only Factor to Consider when Considering A Refinance
Refinancing a mortgage has become more appealing as rates reach levels not seen in over a year. Many homeowners have already taken the chance to reduce their monthly payments, leading to a surge in refinance applications.
Recently, the average 30-year mortgage rate fell to 6.2%, according to Freddie Mac. Just months ago, it stood at 7.22%. This current rate is the lowest in 19 months, providing a significant opportunity for homeowners to refinance a mortgage at lower costs.
Even a slight dip in mortgage rates can mean long-term savings. For instance, refinancing a home valued at the median U.S. price of $422,600 could save buyers $360 a month compared to last year’s peak rates. However, refinancing isn’t just about grabbing the lowest rate. Refinancing comes with its own set of costs, and it may take years to break even.
Are the Current Mortgage Rates Worth Refinancing?
Although rates have dropped, they are still double what they were three years ago. Many homeowners already have mortgages with rates below 6%. In fact, over 75% of homeowners have rates at or below 5%.
If your current mortgage is at 7% or higher, a refinance could make sense, especially if you can reduce your rate by at least 0.5% to 0.75%. For homeowners with adjustable-rate mortgages (ARMs), this might be the ideal time to lock in a fixed rate while they are still relatively low.
How Long Will It Take to Break Even?
The savings from refinancing depend largely on the rate difference. For example, refinancing from 8% to 6% will yield faster savings than going from 6.75% to 6.25%. Consider how long you plan to stay in the home, as breaking even on refinancing costs can take years. Make sure you will stay long enough to justify the fees involved in the process.
Factor in All Costs of Refinancing
While refinancing offers savings, there are costs to consider. Refinancing typically includes appraisal fees, title insurance, and local taxes. These costs may be rolled into the new loan, but this increases the balance or slightly raises the interest rate. Some fees must be paid upfront at closing, making it important to calculate if the refinancing is truly worth it.
Should You Wait for Rates to Drop Further?
Mortgage rates are influenced by the bond market and Federal Reserve policies. As bond yields drop, mortgage rates may continue to decline. However, some experts believe that the current rates have already factored in potential future rate cuts. Therefore, waiting for rates to drop further might not lead to significantly lower mortgage rates.
If you are uncertain about refinancing now or waiting, it’s wise to prepare. Contact your lender or shop around for the best offers so you can act quickly when rates hit a desirable level. Being proactive will allow you to lock in the savings before rates fluctuate again.
The Bottom Line
Refinancing your mortgage can save you money, but it’s essential to weigh the costs and benefits. Low mortgage rates make refinancing attractive, but fees and the time it takes to break even should factor into your decision. If you’re ready to refinance, speaking with a lender can help you secure a rate that aligns with your financial goals.
All quoted rates/payments are based on OptimalBlue’s © pricing engine from 9/13/2024. They
are based on averages and are in no way guaranteed; your rate/payment may be different. This
is not a commitment to lend.
Recent Comments