When Can Recent Buyers Plan to Refinance?

New homeowners who “married the house but dated the rate” are tired of dating, and a surge of refinancing is expected if rates drop a full 1%.

NEW YORK – Today’s buyers may love their home but hate their mortgage. However, for the foreseeable future, rates may very well stay higher than the 3% to 4% loans that made home buying more affordable through much of 2020 to 2022, notes Doug Duncan, chief economist at mortgage agency Fannie Mae.

But rates may dip enough to make it advantageous for recent buyers to refinance that 6-7% rate, says Duncan. He predicts just a 1% drop from owners’ current rate “will trigger significant refinancing.” Moreover, once the Federal Reserve inflation is under control, rates could likely settle in the 4.5% to 6% range.

To entice homebuyers to borrow from them, some lending firms have begun advertising “no cost” refinance later on.

Right time?

Should rates begin to fall, when should a homeowner pull the trigger – or should they wait for further declines?

No one knows exactly where rates will be next week, next month or beyond. And the rate a particular borrower is offered depends on his financial profile, with those with high credit scores or a large income relative to his mortgage payment and other debts earning the most competitive rates. Whether it’s worthwhile to refinance depends on your own instinct on when to jump in, informed by your monthly costs.

Cost/savings calculation

First, a homeowner needs a high degree of certainty that they won’t be moving soon. Then, they should calculate the monthly savings they’d get from a lower mortgage rate to the costs of refinancing. For instance, if it costs $3000 to refinance and the new loan saves $150 monthly, it will take 30 months for refinancing charges to be recouped.

However, refinancing can sometimes be counterproductive to your overall financial health, like when a borrower refinances into a bigger loan to receive “cash back,” notes Nadine Burns, CEO of A New Path Financial.

Another consideration: Look to see if a rate drop allows you to refinance into a shorter-term loan, swapping a thirty-year mortgage for a fifteen year, so that you can be mortgage-free earlier.

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