Fed interest rates cut sharply half a percentOn Wednesday, interest rates were cut by 50 basis points, the first rate cut since March 2020.
Even before the Fed cut interest rates, some homeowners were taking advantage of the recent drop in mortgage rates to purchase property. refinance. 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.
Others have been waiting for the Fed to take action. To this point, 18% of consumers say they Plan to refinance Loans will become available once interest rates drop, according to a report from NerdWallet. The financial services website surveyed more than 2,000 U.S. adults in July.
But it may be too early to benefit from it Mortgage Refinance.
“You need to wait for interest rates to get to a level where you’re willing to keep them there for a period of time,” said Melissa Cohn, regional vice president at William Raveis Mortgage in New York.
Plus, experts say applying to refinance doesn’t mean you’ll be approved. Your lender may say “no.”
“No matter what the Fed is doing, no matter what happens in the broader economy, remember you have a role to play in all of this,” said Jacob Channel, senior economist at LendingTree.
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Factors that may limit your ability to refinance
1. Your financial situation has changed
Make sure your finances are in order. Otherwise, your lender may not approve your mortgage refinance, experts say.
Applying for a refinance is similar to applying for a mortgage. Changes in your financial situation, such as redundancy or a reduction in income or an increase in debt, may mean you are not eligible.
“Your mortgage rate and whether you get approved for a loan or refinance … are up to you,” Channel said.
Cohen says to think about all the “variables that got you approved in the first place,” such as your credit score, your income and how much debt you’ve recently taken on. Changes in these variables may affect your ability to obtain approval.
2. Your loan term is not long enough
How soon you can refinance your mortgage will depend on the age of your loan and your lender’s requirements.
You can refinance within days of closing on some types of loans, while others may require a year of payments, according to Go to the loan tree.
3. You recently refinanced
Technically, there is no hard limit on how many times a mortgage can be refinanced, Channel said.
But he said some lenders have waiting periods. In these cases, if you refinance today, you may not be able to refinance again in December if interest rates move lower after the Fed’s last meeting of the year.
“While there may not be a hard limit on how many times you can refinance, you probably don’t want to refinance that frequently,” he said.
Every time you refinance, you pay closing costs, “so you don’t want to spend your money unwisely,” Cohen says.
Channel explains that if your financial situation changes or interest rates “drop significantly,” it may be in your best interest to only consider refinancing your mortgage every few years.
“Otherwise, you end up in a situation where you spend too much refinancing and your monthly savings aren’t actually that much,” he said.
“Maybe it’s worth discussing a mortgage modification”
In some cases, Mortgage modificationor changing your original home loan to make your payments more manageable, may be an option.
“If you’re really, really struggling and say something catastrophic has happened in your life…rather than refinancing, talk to your lender about a mortgage modification,” Channel said.
To be sure, he said, the broader housing market is not at risk of collapse and most homeowners are “not teetering on the edge of foreclosure.”
But if you’re experiencing financial difficulties, your lender may be willing to modify the terms of your mortgage, Channel says. Contact your lender to see if you qualify.
Keep in mind, Cohen says, that whether refinancing your mortgage makes sense will depend on factors like your income, how long you expect to stay in your home and your closing costs.
“There’s no one rule of thumb that applies to everyone in this country,” she said.
Talk to your lender or broker, or contact a financial advisor, to determine what’s best for you, Channel said.
“They will be able to walk you through your specific situation,” he said.
