People who own their home frequently are watching mortgage rates to determine if now is a good time to refinance their home loan. Whenever you refinance, you always are taking a bit of a gamble because it is hard to say what rates will be tomorrow, let alone next month or next year. When considering taking the time to refinance your house, ask yourself this question: Will this lower my mortgage payments and save me money in the long run as well?
Is Now the Best Time for Home Refinancing?
In 2024 we anticipate that many Americans will rush to refinance their home because home mortgage rates have been rising the last few years. With the Federal Reserve finally halting the interest rate hike, the time for refinancing may finally be upon us.
But for some people, it might be smart to go ahead and refinance; if the economy continues to do well, it is entirely possible we could see 5 to 6% range next year. This could make it hard to refinance for most Americans who bought their home in the last several years.
Home refinancing has always been a timing issue like buying and selling stocks. Before submitting your application, it’s crucial to carefully consider the timing of your mortgage refinancing. Additionally, you need to assess whether refinancing aligns with your financial goals, weighing potential savings against the costs associated with the refinancing process.
But sooner or later, you will probably want to pull the trigger and refinance because of some of the reasons below:
#1 Your Home Has Plenty of Equity
Most lenders want you to have at least 20% equity before you do a refinance without mortgage insurance. For people who have more than 20% equity, it may make sense to refinance and pull out cash even if you cannot save much on the interest rate.
As of late 2023, we are seeing rising rates and appreciating home values. Throughout the US, home values appreciated by more than 6% over last year. Some areas of the country have seen 10% or 20% appreciation. Thus, you could have more equity in your property than you realize. If you want to pull out cash with a refinance, you could be in luck this year with the higher prices. But if you do not want to use your equity, you should be instead watching home refinance rates. If you already have a first mortgage rate below 5%, it may make sense to consider a 2nd mortgage rather than refinancing. Talk to a home equity loan lender before committing to refinancing your house. Compare refinancing to home equity loan for cash out purposes.
#2 Refinance Rates Should Fall in 2024
Interest rates are certainly not the lowest they have ever been. Right now, refinance rates are well above 6% and could be falling to 5% for qualified borrowers. Still, remember that rates are still very low when looking over the past decades. Even as recently this year, refinance rates were in the 7% range.
What really matters of course is what your rate is right now. If your rate is at least ½ a percent higher than current rates, you could make the argument to refinance. This is especially true if you are going to stay in your home for at least four or five years. If you plan to stay put, you will probably save more money by refinancing than what you would pay in closing costs. If you think you are going to move in two or three years, you may want to avoid refinancing because your closing costs will be more than what you will save in interest.
Certainly, it’s essential to determine your new interest rate as part of the mortgage refinancing process. Discuss your situation and goals with a experienced loan officer in an effort to maximize timing the refinance process.
Additionally, during the home refinance process, you might encounter the option to buy down the interest rate upfront. For example, contributing 1% of the loan amount from your own funds could lead to a reduction to your home refinance rate. Consider if now is the right time to refinance your house. Make sure you calculate the monthly savings, so you can assess whether the cost associated with home refinancing justify the overall financial benefit.
#3 Your Credit Score Is High
Having a credit score in the 700’s means you can get the best refinance rates. Right now, according to BankRate, a fixed rate 30 year refinance loan in May 2018 is still well below 5% for well qualified borrowers. Even if your credit score is only in the mid to high 600’s, you still could do well to refinance if you can save ½ a point on your mortgage. It also is good to refinance if you have paid down credit cards because your credit score will have risen substantially. With rates on the rise, it’s likely the right time to get the best refinance mortgage online.
#5 Retiring Soon
Some people want to refinance their mortgage when they are getting close to retirement. If they have the chance to lower their payment by $100 per month, it can make sense to refinance and pay the closing costs. Another option is to refinance into a 15-year mortgage if you are going to be retiring in several years and want to pay off the house sooner.
#6 You Have an Adjustable Rate Mortgage
A common reason to refinance into a fixed rate mortgage is if you have an ARM that is going to reset. Rates are on the rise, and we could well see rates at 5% in the next year. Refinancing an adjustable rate mortgage is often wise before the term converts to the variable rate period. Now could be a good time to refinance that ARM before rates get a lot higher. The 3 and 5 year ARM loans are always popular with borrowers looking to have a lower monthly payment than the 30-year mortgage. Be aware that adjustable rate mortgage carry risks, so speak with a financial advisor before signing loan documents.
#7 You Have an FHA Mortgage
One of the benefits of an FHA loan is if you just want to refinance into a lower rate. You can do an FHA streamline refinance loan that does not require a credit check, income check or new appraisal. This type of refinance can close fast and you can save a good deal on your monthly payment. FHA refinance rates remain competitive this year.
FHA now requires that borrower pay mortgage insurance monthly for life. So if you took out a FHA mortgage recently, you are likely scheduled to pay mortgage insurance every month if you keep the FHA insured loan. It might be wise to refinance out of the FHA loan and get a mortgage that has no monthly mortgage insurance required. This could save you a lot of money over the life of the loan.
The Bottom Line on Timing the Market with a Refinance Mortgage
The viability of mortgage refinancing is often tied to its alignment with your overall financial objectives. Factors such as a desire for a reduced monthly payment, intentions to save on total interest payments, or the need to leverage the equity you’ve built in your home all play a role in determining whether refinancing is a financially sound decision for you.
Whether it is a good time or not to refinance depends upon your interest rate and exact financial and personal situation. For some Americans, right now could be a smart time to refinance before rates rise much more. The strength of the US economy seems well established and it is likely rates are more likely to rise in the next year or two rather than fall. It could be an especially good time to refinance if you are in an ARM because rates are very likely just going to rise in the next year.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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