MORTGAGE BLOGBlog posted On October 17, 2024
If you’re a homeowner, you’ve likely been paying attention to the news, waiting for any positive shifts in the housing market. And with the Fed’s recent benchmark rate drop, you’re probably wondering, is now the right time to refinance? Let’s help you figure out when a refi could make the most financial sense for you to pursue and when to hold off and evaluate your other options.
When should you refinance?*
Let’s examine a few of the most important reasons for refinancing right now, including lowering costs, large expenses, and your home timeline.
Yes, the Fed did cut the benchmark interest rate by 0.5% in September. Despite this welcome relief after 2.5 years of rate increases, average mortgage rates are still above 6%. If you took out your mortgage in the last couple years, it’s definitely worth considering a refinance. However, if your mortgage is older, this might not be the main reason to refinance as your original rate was lower when you purchased your home.
You might want to consider a cash-out refinance if you’ve been preparing for home renovations, like remodeling your kitchen, installing a new roof, or finishing your basement. You can tap into your equity for big renovation expenditures. You could also utilize your equity to potentially pay off high-interest debt, finance school for yourself or your children, or invest in secondary properties.
If enough time has passed since you purchased your home, you can check to see if your property’s value has increased. If it’s increased enough, you could potentially qualify with a refinance to stop paying your PMI. It’s worth considering, so please reach out, we’d be happy to help!
Refinancing to a shorter loan term is something else to consider. For instance, if it hasn’t been long since you purchased your home, you could refinance a 30-year home loan down to a 15-year term. Similarly, homeowners often switch from an adjustable-rate mortgage and refinance to a fixed-rate loan to secure predictable monthly payments.
When should you not refinance?
Despite rates trending lower recently, there are still reasons to hold off on refinancing. You’ll want to ask yourself the following questions before you make another big financial decision.
Are you at least halfway paying through your mortgage’s term? If that’s the case, you likely won’t save much money refinancing, if at all. You could potentially increase the time you’ll be paying off your loan IF you refinance since you’d be restarting the clock.
If you know that you’ll be selling your home down the line, you might not be in your home long enough to recover refinancing costs, thereby negating the reason for refinancing to a lower rate in the first place. It’s better to stick with your current loan until you move and take on a new mortgage instead.
Just like a regular mortgage, a refinance comes with its closing costs. You’ll want to budget for things like appraisal fees, credit report fees, title services, and other third-party costs. If refinancing looks like it’s going to break the bank, you may want to hold off until rates drop further while you save up a fund for a future refinance down the line.
As always, our loan officers are here to help you with whatever home financing needs you have. If you’re worried about the closing costs and whether it makes sense to refinance, our loan officers can help you calculate those figures and give you an honest assessment.
If you want to learn more about our refinancing options or want to see a personalized loan scenario, we’re happy to help!
*By refinancing the existing loan, the total finance charges may be higher over the life of the loan.
