Are you thinking about refinancing your mortgage? If so, you’re not alone. According to the Mortgage Bankers Association, mortgage refinancing has recently increased, and it is up a staggering 118% year over year. This boom comes as interest rates hit their lowest point in a year. But with potential Federal Reserve rate cuts on the horizon, should homeowners act now or wait? Let’s dive in!
The big question on everyone’s mind who bought over the past 24 months is, “Do I refi now, or should I wait?” The answer is that it really depends on your situation! While financial giants like the Mortgage Bankers Association and Wells Fargo are forecasting that rates will drop to around 6% by the end of 2025, locking in a lower interest rate now can bring immediate relief, if you’re feeling the financial strain.
A common rule of thumb is to only refinance if you can reduce your interest RATE by 150-200bps (1.5-2%) as it ensures that the savings outweigh the costs of refinancing, provided you plan to stay in your home for a few more years. Remember, refinancing can often cost between $5,000 to $10,000, so we need to ensure doing so, is worth the cost.
Here are 3 other things to consider when making your decision:
- Can you eliminate your Mortgage Insurance? Many homes have appreciated over the past 24 months, meaning you could have more than 20% equity. Refinancing could help you eliminate this monthly expense saving you hundreds each month.
- Refinance an expiring Adjustable Rate Mortgage (ARM): Adjustable-rate mortgages typically come with an initial period where the interest rate is fixed for 3-10 years and then adjusts based on a financial index like Prime or LIBOR plus a certain interest rate spread. If the fixed rate period for one of your ARMs is expiring, now might be the time to switch to a fixed-rate mortgage.
- Pulling Cash-Out: A cash out refi can provide funds for home repairs or a new investment. Just be sure to run the numbers and double check that it makes sense to do so.
Refinancing can offer significant benefits, but considering your timing and personal circumstance is critical to making the right decision. Whether you choose to refinance now or later, make sure it aligns with your long-term financial goals.
