If you have been considering refinancing but are not sure if now is the right time, given the current mortgage rates, we can help. In this article, we’ll explain whether or not refinancing at the moment is in your best interest.
With very high mortgage rates over the recent past, many homeowners have hesitated to refinance their mortgages. Current mortgage rates have decreased in the past month, though they are expected to cool further into 2024. This is causing many to wonder if they may have the opportunity to get a lower rate on their home loan.
But the reality is you can refinance now for several reasons. For starters, in general, refinance rates and mortgage interest rates can change at the drop of a hat as they are both affected by various economic factors, such as unemployment numbers and inflation.
Moreover, your personal financial history plays an active role in determining the rates you are offered when refinancing. Thus, there is still a strong likelihood that you could see significant savings by refinancing your mortgage this year.
That said, in order for you to make an informed decision, a detailed overview of mortgage refinancing can help.
What Is Mortgage Refinancing?
In simple terms, refinancing refers to the practice of taking out a new mortgage and using the proceeds to pay off your old one in its entirety. You will go through the full borrowing process with your chosen lender, including the credit check, financial history, and employment history, in order to ensure that you have the ability to pay your new mortgage – even if your monthly costs are lower.
Depending on your financial goals, you may refinance to tap into some of the equity you have built up in your home. Or you may refinance in order to secure a new mortgage with a lower interest rate, better payment terms, or take cash out to consolidate debt. Whatever the case, know that if you decide to refinance, you will be engaging with a lender for a brand new mortgage.
When Is Refinancing The Right Move?
When you should refinance depends on your reason for refinancing, which may be because of larger economic or personal economic factors. Common larger economic factors include the current state of the economy as a whole, employment, market conditions, and Federal Reserve policies—just to name a few.
On the other hand, personal factors typically involve your credit or credit history, your home’s equity, your loan (amount, type, or term), and more. For example, when it comes to shortening your term, in some cases, you can lower your rate enough to allow you to shorten the term of your mortgage without increasing or not significantly increasing your payment. In this instance, the result could be savings of 10’s of thousands of dollars over the life of your loan.
Alternatively, with property values high right now, some borrowers are taking advantage of refinancing and tapping the equity in their home to consolidate debt, pay for college, or invest. In these circumstances, it does not take a big drop in your mortgage interest rate for the cash-out refinance to make sense.
Regardless of your reason, consulting with a mortgage professional is the best way to understand how much money you can save. Nevertheless, to get a quick idea of your possible savings, you can simply take a look at how much you owe on your mortgage, your current interest rate, and the types of rates you may qualify for.
For instance, if you owe $200,000 at 6% interest and you can refinance down to 5%, you are going to save a considerable amount over the long term.
Is Now A Good Time To Refinance My House?
As mentioned, mortgage interest rates have risen a lot and are quite a bit higher than they were last year. At the start of 2023, rates were at 6.48%. Now, as of December 2023, the rate for a 30-year fixed-rate mortgage is 6.61%. So, should you hold off on refinancing because of high rates?
The reason now may be a great time to refinance will come down in part to the rate you currently pay and what you can secure today. There’s no “good” refinance interest rate written in stone. Instead, a decent refinance rate would be at least 1% lower than your current interest rate on your mortgage in order for a refinance to make financial sense.
If you chose to drop your rate by even 1%, this would put roughly ten percent of your mortgage payment back into your pocket each month. That said, it’s important to do the math to get a clearer picture of whether a refinance makes sense or not.
Another reason now is the right time to refinance is because home values are at an all-time high, which means home equity has increased for many borrowers. This is definitely good news if you are looking to tap into your home’s equity via a cash-out refinance. What’s more, if you made a smaller down payment when you first got your home and your house has now increased in value, then you might have enough equity to cancel mortgage insurance and save a few hundred dollars each month.
Consider a no-cost refinance as an option to ensure that you do not have to wait months or years to make up the closing costs normally associated with a refinance. This allows you to refinance and take advantage of the current rates but also maintain flexibility to refinance again in the future if rates unexpectedly move lower.
Further, as mentioned, mortgage rates are expected to dip over the next few months, It’s possible for you to snag a lower rate by refinancing at some point in 2024.
Reviewing your no cost options as well as other rate and cost scenarios with an experienced mortgage professional can help ensure that refinancing is, in fact, in your best interest.
At the end of the day, refinancing your mortgage is a major financial decision and not one that should be taken lightly. But with careful research and expert assistance, you can ultimately determine if now is the best time to switch up your mortgage.
Ready to Refinance Your Home Loan?
Are you curious about mortgages, or are you ready to refinance? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, California and Colorado. We offer many mortgage programs as well as expert assistance to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.