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Fed ready to take action first interest rate cut exist Year Wednesday. But the homeowners shouldn’t bet Think of it as an opportunity to refinance your mortgage now.
That’s because “many rate cuts are already priced in,” said Daniel Chen, director of economic research at online real estate brokerage Redfin. recent told CNBC.
While mortgage rates are partly affected by Fed policy, they are also tied to Treasury yields and the economy. Home loan rates have begun to fall in recent weeks, in part due to favorable economic data and signs that the Federal Reserve may cut interest rates.
As of Thursday, September 12, the average U.S. 30-year fixed-rate mortgage rate was 6.20%, according to Freddie Mac through Fed. This is down from this year’s peak of 7.22% on May 2.
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Jeff Ostrowski, housing expert at Bankrate.com, says it can be difficult to perfectly time a mortgage refinance just by looking at mortgage rate activity.
“It’s almost impossible to figure out what’s happening in mortgage rates from week to week or month to month,” Ostrowski said.
However, experts say there are ways homeowners can determine when refinancing makes the most sense for them, especially if further interest rate cuts are planned before the end of the year.
Here’s how to know when it’s time to refinance your mortgage, according to experts.
‘It will be a much smaller wave’
Refinancing activity accounted for 46.7% of total applications in the week ended September 6, up from 46.4% the previous week. according to Mortgage Bankers Association.
Ostrowski said that while refinancing has increased as mortgage rates have fallen, “this will be a much smaller wave compared to the massive refinancing boom in 2020 and 2021.” Financing Wave”.
Channel said most homeowners have mortgage rates below 5%.
Refinancing will primarily benefit “a small number of people” who bought homes “when interest rates fell” is 8%“Ostrowski said.
Experts say whether it’s wise for homeowners to refinance their mortgages will depend on factors such as their existing borrowing and repayment schedules.
How to know when you need to refinance
If you’re considering refinancing, watch carefully how market rates are changing and contact your lender to see if doing so makes the most sense for you now or in the near future, Channel says.
“The only person who can decide whether refinancing is worth it based on what’s going on in your life is you,” he said.
The following three criteria can help you determine whether refinancing makes the most sense for you:
1. You can lower interest rates by 50 basis points or more
Know when it makes sense RefinanceExperts say homeowners would need to see mortgage rates drop significantly to benefit. The current exchange rate should be At least 50 basis points below “Your current exchange rate,” Zhao said.
But this is not a “hard and fast rule,” the channel said.
Some experts set the bar higher: If interest rates have dropped one to two percentage points since you took out your mortgage, it “makes sense” to consider refinancing, Ostrowski said.
Even if your existing mortgage has a high interest rate, you may want to consider waiting until the central bank cuts rates further. Zhao said interest rates are expected to decline steadily throughout the remainder of 2024 and 2025.
2. You can afford to refinance
There are two ways to pay for a refinance: Pay cash up front, or roll the costs into the new loan, thereby increasing your monthly mortgage payments.
Melissa Cohn, regional vice president of William Raveis Mortgage in New York, said there’s no free lunch when it comes to loan refinancing. Tell CNBC last month.
Channel says that generally, refinancing fees range from 2% to 6% of the refinanced loan amount.
For example: If your current loan amount is $250,000 and you want to refinance the total amount, expect to pay 2% to 6% of $250,000, or approximately $5,000 to $15,000.
If you’re planning to refinance, make sure you can afford it related costs, Examples include closing costs, appraisals and title insurance. The total cost depends on your area.
3. Your savings will exceed the cost
You can also look at your “break-even point,” which is the point at which your savings exceed the cost of refinancing, Channel says.
Here’s an example calculation: If you decide to refinance your mortgage and it costs $6,000 and you save $200 per month, divide $6,000 by $200. The result is how many months you have until your refinance “pays for itself.”
